What Strikes Against Stryker?

It's hard to complain about a company that posts double-digit sales growth for 30 consecutive quarters, but investors are finding a way today after Stryker (NYSE: SYK  ) reported earnings Thursday afternoon.

The company operates in two segments. The first, orthopedic implants, reported 15% year-over-year growth, with three of its five product franchises growing by more than 20%. What weighed this segment down was its hip replacement business, which grew by just 7% because an earlier recall of its Trident hip product is still affecting sales. However, Stryker is again supplying the Trident and is working to restore market share that it lost to Johnson & Johnson (NYSE: JNJ  ) .

The other half of Stryker's business, medsurg equipment, posted nice 21% year-over-year growth in second-quarter sales, thanks in large part to healthy international growth of 37%, which is reduced to 25% after correcting for currency exchange. Back at home, the segment that sells medical equipment to hospitals posted year-over-year growth of 16%.

All isn't perfect with Stryker, however. The company is dealing with three Food and Drug Administration warning letters that deal with quality-control issues and FDA inspections at two manufacturing plants. Stryker said it will spend $50 million per year over the next few years to deal with the problem.

There are two likely reasons for today's decline. First, investors have come to expect the growth, so numbers like the ones above are no longer as exciting. Even though the company beat estimates by a penny, in today's market, that isn't enough. Second, the FDA issue could still be weighing on the company.

It'll be interesting to see what happens when fellow medical implant companies Zimmer (NYSE: ZMH  ) and Smith & Nephew (NYSE: SNN  ) report earnings in the coming weeks. Both sport P/Es that are in line with or higher than Stryker's P/E, suggesting that investors are expecting more of the same double-digit growth from the rest of the industry.

More high-growth prospects:

High growth is where it's at with the Motley Fool Rule Breakers newsletter. See what companies are expected to sweep the market aside with a free 30-day trial. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Stryker, and Johnson & Johnson is a selection of the Income Investor newsletter. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 688229, ~/Articles/ArticleHandler.aspx, 8/1/2014 2:45:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement