Stryker Enhances Return - Analyst Blog

Orthopedic devices major Stryker Corp (SYK) has raised its quarterly dividend to 18 cents a share from 15 cents, representing a 20% hike. This lifts the annual dividend to 72 cents per share from the current payout of 60 cents and equates to a dividend yield of roughly 1.4%. The revised quarterly dividend is payable on Jan 31, 2011, to shareholders of record as on Dec 31, 2010.

Moreover, the Michigan-based company's Board has approved an additional $500 million share repurchase authorization, representing another commitment to boost shareholder returns. The repurchase will be executed from time to time based on market conditions, stock price and other factors. Stryker has bought back shares worth roughly $410 million (as of December 7) under its existing $750 million repurchase program.    

The dividend increase underscores Stryker's commitment to deliver incremental returns to investors leveraging a solid balance sheet, healthy free cash flow and earnings power. So far, the company has returned roughly $238 million to its shareholders in 2010 by way of dividends. The company's strong balance sheet enables it to grow business through incremental R&D investment while maximizing investor value, concurrently. 

Stryker posted healthy results in third-quarter fiscal 2010 with both revenue and earnings exceeding the Zacks Consensus Estimate, led by sustained healthy sales from the MedSurg Equipment division. The company raised the bottom-end of its sales and earnings guidance for 2010.

Stryker remains well positioned for growth across its Orthopedic and MedSurg units driven by new product launches, acquisitions and an improving hospital capital spending backdrop. The company's MedSurg division is benefiting from the synergies of the acquisition of Ascent Healthcare Solutions.  

However, Stryker faces stiff challenges from Zimmer Holdings (ZMH), Smith & Nephew (SNN), CONMED Corp (CNMD), Biomet and DePuy, a division of Johnson & Johnson (JNJ) in a highly competitive orthopedic industry.

Moreover, Stryker is exposed to pricing and volume pressure on its hip, knee and spine products and a soft reconstructive implant market, which could potentially dent future earnings.The general sluggishness in the orthopedic market represents a key concern. We are currently Neutral on Stryker.

 
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