Investopedia: Meet The New Stryker

This is not your father's Stryker (NYSE:SYK) anymore. Although Stryker is still thought of first and foremost as an orthopedics company (and ortho is more than 58% of sales), the company has a sizable surgical/medical equipment business and has been using acquisitions to add more markets to its portfolio. Though Stryker is not liable to turn into a serial acquirer like Integra Life Sciences (Nasdaq:IART) used to be, or Danaher (NYSE:DHR) still is, investors should keep their eyes open to the possibility that Stryker might have a few more tricks up its sleeve and more growth potential than commonly thought. 

The Quarter Was What We Thought it Was
Stryker pre-announced its fourth-quarter results prior to a major investor conference earlier in January, so there were not many surprises in Tuesday night's report. Revenue rose 8.8% as reported (and 8.6% in constant currency), with the ortho business showing 4.5% growth. Ortho growth was helped by relative strength in hips and trauma, and hampered by weakness in spine. The MedSurg business continues to recover well, with better than 15% growth in this quarter. (For more, see Investing In Medical Equipment Companies.)

Operationally, Stryker has always been a solid performer, and this time around was no different. Gross margin increased 100 basis points (to 68.7%). Stryker ramped up its operating spending, particularly in R&D, and that took almost two and a half points out of the operating margin (after adjusting for some exceptional items). Nevertheless, adjusted earnings did grow more than 12% for the period, and the company posted year-on-year free cash flow growth once again (continuing a six-year streak). (For more, see Profitability Ratios: Introduction.)

The Road Ahead
It is still early in the reporting cycle, but Stryker's commentary on the orthopedic market was definitely more positive than that of Biomet and another large rival that recently reported earnings. With new products in the hip category, it looks like Stryker is a share-taker in the market once again, though pricing is still an issue. As an aside, though, investors who want really exciting growth in orthopedics shouldn't be looking at Stryker, Smith & Nephew (NYSE:SNN) or Zimmer (NYSE:ZMH); look instead at much smaller companies like Orthofix (Nasdaq:OFIX), Alphatec (Nasdaq:ATEC) and Nuvasive (Nasdaq:NUVA).


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