J.P Morgan Comments On J.P Morgan's Earnings Outperformance

Stryker SYK posted full 4Q results Tuesday night that were in line with its earlier positive preannouncement, with sales of $1.995B coming in $50M above the prior Street consensus. The 4Q upside was driven by a strong orthopedic performance, as Recon revenue of $1.166B was $26M better than its projection. Meanwhile, MedSurg revenues of $829M came in $3M above J.P Morgan's estimate. Management also reiterated the initial 2011 guidance it first gave earlier this month, calling for adjusted EPS of $3.65-3.73 on constant currency revenue growth of 11-13%. Gross margin of 68.7% was 20bps above our estimate and up 100bps YOY due to a combination of operational efficiencies and business mix. Stryker anticipates further gross margin improvement in 2011, aided by the addition of the Target neurovascular business, which it estimates will provide a 40-bp boost. This was mostly offset in JPM's model by a higher share count as the company's active share repurchase activity in the quarter failed to translate into as meaningful a reduction in the weighted average count as we anticipated. As a result, it views overall earnings quality as relatively robust. J.P Morgan has a $62 PT and Neutral rating on SYK SYK closed Tuesday at $58.37