Investopedia: Does Stryker Need Further Reconstruction?

Stryker (NYSE:SYK) has been relatively active of late in recrafting its business, but the first quarter's results suggest that management's work may not be done yet. Stryker remains a good core holding for GARP-oriented investors, but management is going to need to deliver better results on the "guh" side of GARP to get the Street excited again. 

An Okay (but Not Great) Quarter
Stryker did not disappoint, per se. But analysts are not going to be thrilled with the company's numbers nevertheless. Revenue grew more than 12% on a reported basis, with core constant currency organic revenue growth of 4%. That continues a rather unfortunate trend of unimpressive growth that stretches back a few years now.

While that revenue growth met expectations, the composition is the tricky bit. The orthopedics business was flat, while the MedSurg unit was up more than 12%, with double-digit growth in instruments and endoscopy. Even though companies like Johnson & Johnson (NYSE:JNJ) and Covidien (NYSE:COV) have long done well in endoscopy and its a good repeat business, other aspects of MedSurg are more tied to hospital capital budgets - that, and the margins, are largely why analysts don't love that unit so much.

Speaking of profitability, Stryker saw better gross margin on an adjusted basis. Adjusted operating income rose 10%, but margins still contracted all the same. So, the company met its numbers but not in a way that is going to have anybody pounding the table.


Please click the link to read the piece at Investopedia:
http://stocks.investopedia.com/stock-analysis/2011/Does-Stryker-Need-Further-Reconstruction-SYK-JNJ-COV-ZMH-SNN0421.aspx