Stryker Stock Gains 18.6% YTD: What's Driving its Share Price?

Stryker Corporation SYK has witnessed substantial gains in the year-to-date period. Shares of the company have rallied 18.6% compared with 13.4% growth of the industry. The S&P 500 Composite has risen 20.1% during the same time frame.

With healthy fundamentals and strong growth opportunities, this Zacks Rank #3 (Hold) company appears to be a solid wealth creator for investors at the moment.

Headquartered in Kalamazoo, MI, Stryker is one of the world's largest medical device companies operating in the global orthopedic market. The company has three business segments — Orthopaedics, MedSurg and Neurotechnology & Spine.

Strength in Stryker's flagship Mako Total Knee Platform, which enables surgeons to do pre-operative planning and precise surgeries, looks promising. The company is also adopting several cost-cutting measures, including restructuring plans. Its prospects seem promising on the back of strong customer demand for its existing products as well as new launches. Stryker's recent acquisitions also raise optimism about the stock. 

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Catalysts for Stryker's Growth

The surge in the company's share price can be attributed to its advanced robotic arm-assisted surgery platform, Mako, a strong product lineup and strategic acquisitions. The positive sentiment, driven by a solid second-quarter fiscal 2024 performance and promising business potential, is expected to continue aiding it.

Stryker ended the second quarter on a high note, with both earnings and revenues showing year-over-year improvement. The company saw robust performance in the U.S. market, particularly in Instruments, Medical, Endoscopy, Trauma and Extremities, and Mako, which likely boosted the stock's price.

SYK has increased its revenue and earnings forecasts for fiscal 2024, likely attracting investor interest. The company now anticipates organic revenue growth of 9-10% for fiscal 2024, up from the previous guidance of 8.5-9.5%. Adjusted earnings per share for 2024 are now expected to be between $11.90 and $12.10, indicating 12% growth at the midpoint compared with the earlier projection of $11.85-$12.05.

SYK's extensive product range has also garnered investor optimism. Its broad product spectrum shields it from significant sales declines during economic downturns. The company's vast experience in medical robotics, artificial intelligence and mechatronics has kept it at the forefront of the MedTech industry.

In August, SYK launched the Pangea Plating System, which received FDA clearance in late 2023. The Pangea System offers variable-angle plating for diverse patient demographics with a comprehensive and adaptable portfolio. With the Pangea System, Stryker has become a key partner for trauma-related products, including plates, nails and external fixation devices, supported by dedicated staff and excellent service.

In June, Stryker introduced the LIFEPAK 35 monitor/defibrillator, a device featuring advanced technology aimed at improving workflow efficiency and providing advanced clinical solutions for emergency responders and healthcare professionals. Additionally, the company launched the Gamma4 Hip Fracture Nailing System in Germany on June 4.

In addition to expanding organically, Stryker has bolstered its expansion by way of acquisitions. Last month, the company completed the buyout of Vertos Medical, a privately held company providing a minimally invasive solution for treating chronic lower back pain caused by lumbar spinal stenosis.As a result of the acquisition, Stryker is set to expand its minimally invasive pain management portfolio with differentiated treatments and expand its reach across ambulatory surgery centers.

In June, Stryker also acquired care.ai, a privately held company specializing in AI-assisted virtual care workflows, smart room technology and ambient intelligence solutions. The company closed the acquisition of NICO Corporation, a privately held company providing a systematic approach to minimally invasive surgery for tumor and intracerebral hemorrhage ICH procedures, in September.

SYK also announced the completion of the acquisition of MOLLI Surgical Inc., a privately held company specializing in the development of wire-free soft tissue localization technology for breast-conserving surgery, in August. In July, Stryker completed the previously announced acquisition of Artelon, a privately held company specializing in innovative soft tissue fixation products for foot and ankle and sports medicine procedures.

Risk Factors

As Stryker continues to acquire a large number of companies, which improves revenue opportunities, it is also likely to add to integration risks, putting gross and operating margins under pressure. Frequent acquisitions may affect the company's balance sheet in the form of a high level of goodwill and intangible assets.

A negative change in exchange rates is also a threat to SYK's core operations. The trend is likely to continue for the rest of 2024, though, at a slower pace. The company is also facing inflationary pressure, leading to lower margins.

A Look at Estimates

SYK's EPS for fiscal 2024 and 2025 is projected to increase 13.2% and 12.1% to $12.00 and $13.45 on a year-over-year basis, respectively.  The Zacks Consensus Estimate for EPS for fiscal 2024 and 2025 has remained stable over the past 30 days.

Revenues for fiscal 2024 and 2025 are anticipated to rise 9.2% and 7.8%, respectively, to $22.37 billion and $24.12 billion on a year-over-year basis.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Universal Health Service UHS, Quest Diagnostics DGX and Baxter International BAX, each carrying a Zacks Rank #2 (Buy).

Universal Health Service has an estimated long-term growth rate of 19%. UHS' earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.

Universal Health Service has gained 47% compared with the industry's 47.7% rise so far this year.

Quest Diagnostics has an estimated long-term growth rate of 6.2%. DGX's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.

Quest Diagnostics shares have gained 12.3% so far this year compared with the industry's 19% rise.

Baxter's earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.74%.

BAX's shares have declined 6.9% so far this year against the industry's 13.3% growth.

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