Muted number, outlook still positive

In amongst the excitement of Thursday evenings reporting came that of Stryker, the Third Quarter Highlights looked a little more like the Samoa checklist of their World Cup highlights. Some, not enough to please the pundits. The stock sank over four percent Friday on a day that stocks were on balance going a lot higher. After the move Friday the stock is trading flat for the year. Why the sudden slowdown in revenues, both orthopaedics and the MedSurg divisions were flat? Partly the Dollar, as you can see in constant currencies sales would have in those two divisions been around 5 percent higher year on year. The neurotechnology and spine division area nearly 10 percent in constant currency terms, 5 percent in Dollar terms. That division sadly only represents 20 percent of group revenues, the balance spread almost evening between the two aforementioned ones.


The outlook and guidance for the year (which expected at current exchange rates a negative 4 percent hit from a stronger Dollar, or 25 cents) expects a full year range of 5.07 to 5.12 Dollars per share. Which puts the stock on a current year estimate of 18.4 times earnings. The stock is not overly expensive and not wildly cheap either. We really like the space however, the company operates in a fast growing segment of the market, and as a standalone devices and diagnostics business, we believe it is the best in terms of quality. The older people live as a result of improved therapies globally, the more they will have to have hip, knee, ankle, even spinal therapies. Those will become more commonplace and are in fact more procedural (with risk of course) than life threatening. We maintain our buy rating on the company. Once the currency headwinds are out of the way, we expect that earnings growth will return to a 10 percent per annum trajectory.