Stryker Corporation (SYK)

Equity
US
Healthcare

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Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Strong margins and returns

Greatly overvalued vs peers

Good growth

Corporate actions & dividendsDividend of USD 0.800 with an ex-date of 28 Jun 2024.

Company profileStryker Corporation operates as a medical technology company. The company operates through two segments, MedSurg and Neurotechnology, and Orthopaedics and Spine. The Orthopaedics and Spine segment provides implants for use in hip and knee joint replacements, and trauma and extremities surgeries. This segment also offers spinal implant products comprising cervical, thoracolumbar, and interbody systems that are used in spinal injury, deformity, and degenerative therapies. The MedSurg and Neurotechnology segment offers surgical equipment and surgical navigation systems, endoscopic and communications systems, patient handling, emergency medical equipment and intensive care disposable products, reprocessed and remanufactured medical devices, and other medical device products that are used in various medical specialties. This segment also provides neurotechnology products, which include products used for minimally invasive endovascular techniques; products for brain and open skull based surgical procedures; orthobiologic and biosurgery products, such as synthetic bone grafts and vertebral augmentation products; minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke; and craniomaxillofacial implant products, including cranial, maxillofacial, and chest wall devices, as well as dural substitutes and sealants. The company sells its products to doctors, hospitals, and other healthcare facilities through company-owned subsidiaries and branches, as well as third-party dealers and distributors in approximately 75 countries. Stryker Corporation was founded in 1941 and is headquartered in Kalamazoo, Michigan.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

37.40

32.20

PEG

4.30

P/B

6.60

5.40

P/S

6.00

5.60

P/FCF

44.00

42.90

EV/EBITDA

25.80

Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 12ppts over past six months and grown 3ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 395 and suggests 20% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 406.0. This translates into 23% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 345.0. This suggests 5% upside potential. Even the most pessimistic analyst believes there will be stock growth.

Profitability: Strong

RoE

Stryker Corporation reported a return on equity (RoE) of 17.8% in the last 12 months, down from 18.0% in FY23. The market consensus projects an RoE of 18.4% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 8.5% in the last 12 months, an increase from 8.2% in FY23. The market analysts predict that RoA will be 8.9% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 10.4%, above the peers. The consensus estimate for FY24 for RoCE is 13.9%, again ahead of the peers.

Net margin

EBITDA margin

Historically, SYK has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 16.0%, a growth from 15.4% in FY23. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 24.8% in the last 12 months, up from 24.2% in FY23.

RoIC / WACC = 1.3(average value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.3 in the past several years. This ratio implies a average shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

SYK reported revenue of USD 20 963mn in the last 12 months, up 2% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 6% from FY23 to USD 8.85. Market expects EPS to reach USD 10.18474 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA growth has been steady. This all contributed to fast EPS growth (positive). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue, EBITDA and EPS dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note robust profitability, solid return on capital, and adequate interest coverage, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and poor working capital management.

Volatility: Negligible

In normal market circumstances, SYK is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal.

Stress-test: Negligible

In highly turbulent market conditions, SYK is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

SYK boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.