Stryker Q2 - Market-beating results

Last week Stryker, our preferred stock in the medical devices industry, issued market-beating results with revenue of $4.9 billion, up 9.6% year-on-year, and earnings per share of $2.46. Even with that handy beat on revenue and profits, the share price dropped 0.8% on Friday because hip and knee replacement revenue was lower than expected.

There have been some 'knee-jerk reactions' (excuse the pun) that the new weight-loss drugs will reduce the number of knee and hip replacements, which would be bad for Stryker.

The company has countered saying that it is too early to tell if those drugs have had any impact on their sales. Stryker argues that people losing weight may be good for business, because many obese people are too heavy to have knee and hip replacement surgeries, so dropping some weight fast on these meds will allow them to have their operations sooner. Slimmer people will also be more active, and take up sports, which actually creates demand for new hips and knees.

Note too that hip and knee surgeries only account for about 10% of Stryker's sales. They have a very wide portfolio of medical-surgical and neurotechnology products, sales of which jumped 10.1% organically to $2.86 billion. Orthopaedic and spine sales advanced 8% to $2.05 billion.

Looking ahead, Stryker increased both revenue and profit guidance for the next quarter. Shareholders are usually more interested to see what is to come than what has happened, so management raising guidance is a very strong signal and we expect the share price to react more favourably in time.