Deutsche Bank Comments On Stryker Following Solid Earnings Report

Stryker's

1Q sales were in line with Consensus at $2.0B, up 12% reported and 10% ex-FX. Underlying hip and knee sales were below Deutsche Bank's estimate and likely the Street. However, MedSurg made up the difference. After adjusting for acquisitions and FX, sales were up just 4%--far from an impressive quarter but likely in line with the broader MedTech market. EPS rose 12.5% to $0.90 and were $0.01 ahead. Given the stock's relative premium valuation, Deutsche Bank sees the stock as fully valued and as it maintains a Hold and $61 PT. Commentary suggests price stability and incrementally better mix better thus absent major market share movements from Zimmer and S&N unit volumes decelerated. While Deutsche Bank believes the volumes will recover, it thinks a recovery is farther off than the market expects and the magnitude may also be less as we expect net price/mix to remain negative. Orthopedic sales were weaker though sales of MedSurg were better. However, net/net organic sales were up just 4% in the quarter. Total company pricing was down 1.9%, which was better than the 2.1% in 4Q though Deutsche Bank chalks it up to a greater MedSurg mix which has better pricing dynamics rather than a sign that ortho pricing is improving. SYK closed Tuesday at $61.10