Stryker Corporation (NYSE:SYK) is a reliable company whose stock is currently trading substantially below the recent high of $276 set in April. After the recent price dip, it now appears to be a strong and expanding company that could be appealing to long-term investors.
The Case for Stryker
For use in orthopedics, surgery, neurotechnology, and spine, Stryker designs and produces implanted devices, hospital equipment, tools, consumable supplies, and other products.
Above competitors Johnson & Johnson (NYSE:JNJ) and Zimmer Biomet (NYSE:ZBH), Stryker enjoys a strong position in operating room equipment and is also the market leader in reconstructive orthopedic implants.
Stryker gains from its reputation as a reliable partner with healthcare providers and from its more than 4,000 U.S. patents on device technology. This creates a “moat” around the firm and makes it difficult for new entrants and competitors to gain market share. It also gains from the aging population’s secular growth, with the 65+ age group experiencing the fastest rise. By the end of this decade, the U.S. Census Bureau predicts that 1 in 5 Americans will fall into this category.
These elements work together with Stryker’s scale economies to produce profitability that leads the industry. Stryker (NYSE:SYK) earns an A for profitability, as evidenced by its impressive EBITDA and Net Income margins of 26% and 14%, respectively.
With revenues increasing by 4.6 percent year over year (6.1 percent on an organic basis) to $4.5 billion in the second quarter, Stryker continued to perform well in the present macroeconomic environment. Strong sales in the medical and surgical and neurotechnology sectors, which increased by 8 percent and 10.6 percent, respectively, were the main drivers of this. Additionally positive, Stryker is expanding its bottom line more quickly, with YoY EPS growth of 11% over the same period.
What About Supply Chain Issues?
Stryker is facing continuous supply chain issues, which have hampered its ability to fulfill orders from its backlog and restrained sales growth. Stryker (NYSE:SYK) does not appear to be experiencing demand challenges, thus the troubles may only be confined to the supply side. This is demonstrated by its extremely strong order book, and it is anticipated that growth will pick up speed in the second half of the year, resulting in full-year predicted sales growth in the 8–9% range.
In the future, Stryker should continue to profit from its diverse product mix, which will allow it to fulfill rising demand in expanding markets like medical and surgical.
Additionally, Stryker is comparatively less susceptible to the escalating competitive pressure on hips and knees. Stryker’s presence in the market for medical and surgical equipment provides some level of stability and lessens the effects of cyclical economic downturns. Stryker (NYSE:SYK) has greater options to develop significant innovation as a result of the diverse product lines, which is essential to achieving pricing advantages.
Stryker is still pursuing its strategy of acquiring specialized technology, such as Patient Safety Technologies, Small Bone Innovations, Sage, Mako, and K2M, to supplement its own internal innovation. This supports the company’s overarching objective of strengthening relationships with its hospital clients across a range of device and equipment categories.
A Safe Dividend Stock
While Stryker’s dividend yield of 1.3 percent isn’t particularly high, it appears to be highly safe and covered by a low 29.7 percent payout ratio, a 10.4 percent 5-year CAGR, and an impressive growth streak of 28 straight years. In the meantime, SYK maintains a strong BBB+ rated balance sheet.
On the surface, Stryker (NYSE:SYK) still doesn’t appear to be inexpensive at its current price of $213 and a forward PE of 22.7. However, many analysts believe that this price is justified in light of the fact that the company has a moat and that analysts anticipate EPS growth of 10% annually over the following two years. With an average price objective of $238.48 and a consensus Buy recommendation on the company, sell-side analysts predict a good total return of 13 percent over the next year.
In Conclusion
Stryker (NYSE:SYK) seems like a good choice for those searching for a defensive growth stock with a big moat. The company, at the current price, is an appealing investment due to its leading industry profitability, strong sales growth, and strong balance sheet.
Featured Image: Megapixl @Michaelvi
