After an initial surge near all-time highs due to exceeding both top and bottom-line expectations in Q3, shares of Stryker (SYK, Financial) have started to decline. The medical device company, known for joint replacement, also raised the lower bounds for its FY24 adjusted EPS and organic net sales growth forecasts.
Why are SYK shares not maintaining their early momentum? The stock trades at a premium with forward sales and earnings multiples of 5.7x and 27.3x, respectively. This is considerably higher than competitors like Zimmer Biomet (ZBH, Financial), which trades at about half these multiples, and Johnson & Johnson (JNJ, Financial). As a result, any minor weaknesses in SYK's earnings are closely scrutinized.
The main issue, although minor, is that SYK did not increase its FY24 outlook despite significant Q3 outperformance. The FY24 projections suggest a slight decline in Q4, primarily due to unfavorable foreign exchange impacts that could slightly affect sales and earnings. However, SYK still expects to meet the higher end of its full-year targets.
- SYK's confidence is fueled by another strong quarter. Adjusted earnings rose 17% year-over-year to $2.87, with revenues climbing 12% to $5.49 billion. This represents an acceleration from the previous quarter's year-over-year growth. Organic sales growth was 11.5%, building on a solid 9.2% increase in Q3 2023. Pricing strategies across U.S. and international markets positively impacted the top line.
- Each segment achieved double-digit net sales growth. MedSurg and Neurotechnology saw nearly a 13% increase to $3.2 billion, mainly due to higher unit volumes. Notably, the 1788 imaging platform's strong adoption, which enhances surgical procedures by displaying otherwise invisible items, was a key contributor. Orthopaedics and Spine net sales grew by nearly 11% to $2.3 billion, again driven by higher unit volume. The Mako system remains a standout, with steady adoption in knee and hip procedures.
- SYK's recent platform launches are also performing well. The Pangea Plating System, set for a U.S. launch by the second half of 2025, and the LIFEPAK 35 defibrillator and monitor, which already has a robust order book, are expected to boost sales.
SYK's consistent Q3 results highlight the durability of its products and its growing economic moat. Once surgeons are familiar with specific equipment, hospitals may find it challenging to switch to other technologies. The Mako system continues to showcase its technological edge as its installed base expands. With SYK's strong global presence, especially in knee, hip, and shoulder surgeries, its long-term position remains solid.
