Stryker Corporation (Symbol-SYK)

[pitz]

SYK -- Stryker Corporation. The leading designer manufacturer of orthopedic implants, with an annualized growth in revenues of 20% throughout its entire history. The P/E at 28 is perhaps a bit rich, but this company has proven to be recession-proof in terms of revenue growth. Its bounced a bit off a 52-week low, but I bought to diversify my SC.TO - heavy portfolio. Biggest long-term risk is litigation, of course, or a buyout by JNJ or similar.

Also bought to hedge my eventual need for a hip replacement. There are very few players in this sector, and the medical community, being fairly risk-adverse, won't just start using some upstart's products overnight.

Negligible debt ($14 million, lol) as well, which is a nice feature. Given its long-term earnings growth history, no debt, etc., this seems to be an ideal stock according to the criteria of Buffet. Except that its 'high tech', and he doesn't invest in that.

[Peculiar_Investor]

Interesting article on this company at SeekingAlpha, Stryker: Just What the Doctor Ordered

Have a position and looking at adding to it based on valuation. EPS has consistently grown at 24% over past 10 years. Company, in their last quarterly news release confirmed guidance

The Company's outlook for 2008 continues to be optimistic regarding underlying growth rates in orthopaedic procedures and sales growth rates in the Company's broadly based range of products in orthopaedics and other medical specialties, despite the potential for continued pricing pressure in certain markets. The Company projects that diluted net earnings per share for 2008 will approximate $2.88, an increase of 20% over adjusted diluted net earnings per share from continuing operations of $2.40 in 2007.

My only concern had been that company was priced to perfection on achieving their long term goal of 20% EPS growth and stock price could get whacked if this was missed. However, it appears that price has been whacked anyway, so this risk is reduced IMHO.

Perhaps [s]Nurseb911[/s]Brad911 has a viewpoint on this company, although he doesn't seem to mention it on his blog.

[brad911]

Perhaps Nurseb911 has a viewpoint on this company, although he doesn't seem to mention it on his blog.

It is a company I'm familiar with (professional & investment), but never owned.

An area of caution that I might add? A big component of earnings for the company come from ortho products and you can tie this into an economically sensitive market. While some surgeries are required many are considered elective and paid out of pocket or via insurance. I put Stryker in the same category as NADX. Now NADX is a much different company, but they both offer essentially elective procedures that individual patients may be very willing to have done during good times, but hold off during bad. You might think a bad knee is something you won't want to suffer with, but if you're paying a portion out of pocket than the decision in tough times can be quite easy.

NADX has suffered a serious P/E contraction and earlier last year was selling above 25x earnings. They've been focused on cost cutting measures and expanding market share, but it still comes down to the number of patient's willing to fork out a portion of their own money for the procedures. Stryker makes really good products, but I see them as having almost as serious of a problem with sales growth as NADX (even a potential contraction of sales).

I don't work directly with these (not an ortho or OR nurse) so I'm much more familiar with medical supply/device companies such as GE, JNJ, BAX & BDX. For BAX & BDX you're getting a lot safer sales stream in a down market because their products are most often single use items (IV's, catheters, tubing, etc). They're aren't cheaper alternatives and those products are a high demand market.

I see elective surgeries as something people will be willing to put off for 6-18 months and that could have a negative impact on other medical supply companies over the interim. I've heard that from a few sales reps already second hand and seen it in the results recently for NADX.

If you're happy to sit on this stock for 5-10 years (or more) it has a great track record of performance, dividend growth and is situated with a market demographic that clearly will have increased demand longer-term. But I expect sales to come down and the market to whack it further. This is one I'd likely wait for the consumer to pass a litmus test on before venturing into. Both companies are on my radar but I think they see continued pressure over the next six months in their sales, costs & ultimate earnings.

[Peculiar_Investor]

Perhaps Nurseb911 has a viewpoint on this company, although he doesn't seem to mention it on his blog.

It is a company I'm familiar with (professional & investment), but never owned.

An area of caution that I might add? A big component of earnings for the company come from ortho products and you can tie this into an economically sensitive market. While some surgeries are required many are considered elective and paid out of pocket or via insurance. I put Stryker in the same category as NADX. Now NADX is a much different company, but they both offer essentially elective procedures that individual patients may be very willing to have done during good times, but hold off during bad. You might think a bad knee is something you won't want to suffer with, but if you're paying a portion out of pocket than the decision in tough times can be quite easy.

NADX has suffered a serious P/E contraction and earlier last year was selling above 25x earnings. They've been focused on cost cutting measures and expanding market share, but it still comes down to the number of patient's willing to fork out a portion of their own money for the procedures. Stryker makes really good products, but I see them as having almost as serious of a problem with sales growth as NADX (even a potential contraction of sales).

I don't work directly with these (not an ortho or OR nurse) so I'm much more familiar with medical supply/device companies such as GE, JNJ, BAX & BDX. For BAX & BDX you're getting a lot safer sales stream in a down market because their products are most often single use items (IV's, catheters, tubing, etc). They're aren't cheaper alternatives and those products are a high demand market.

I see elective surgeries as something people will be willing to put off for 6-18 months and that could have a negative impact on other medical supply companies over the interim. I've heard that from a few sales reps already second hand and seen it in the results recently for NADX.

If you're happy to sit on this stock for 5-10 years (or more) it has a great track record of performance, dividend growth and is situated with a market demographic that clearly will have increased demand longer-term. But I expect sales to come down and the market to whack it further. This is one I'd likely wait for the consumer to pass a litmus test on before venturing into. Both companies are on my radar but I think they see continued pressure over the next six months in their sales, costs & ultimate earnings.

Thanks Brad, your comments are most appreciated. I'm modeling out 5 years into the future with the view of a minimum 5 year holding period, so can afford to wait, particularly when I believe that I'm purchasing at a discounted price to where I expect this company to be in 5 years. I recently added to this position and posted my rational in the "What did you buy" thread.

[Peculiar_Investor]

The Company projects that diluted net earnings per share for 2008 will approximate $2.88, an increase of 20% over adjusted diluted net earnings per share from continuing operations of $2.40 in 2007.

My only concern had been that company was priced to perfection on achieving their long term goal of 20% EPS growth and stock price could get whacked if this was missed. However, it appears that price has been whacked anyway, so this risk is reduced IMHO.

Stryker announced a reduction in their guidance this morning,

Excluding the impact of the fourth quarter 2008 restructuring charge, adjusted diluted net earnings per share for 2008 are expected to be in the range of $2.82 to $2.84, an increase of 18% compared to adjusted diluted net earnings per share from continuing operations of $2.40 in 2007.

so I guess we'll see the impact of missing their goal of 20% earnings growth. I still believe in this company long-term and my model assumes a 17% EPS growth over the next 5 years and a reduction in average P/E. This morning's price action will be interesting I believe as the market digests this news.

[brad911]

so I guess we'll see the impact of missing their goal of 20% earnings growth. I still believe in this company long-term and my model assumes a 17% EPS growth over the next 5 years and a reduction in average P/E. This morning's price action will be interesting I believe as the market digests this news.

No, but if you have a five year outlook you're likely in a good position. As I mentioned upthread my sole concern would be the sales growth/compression in the space that others are currently experiencing. They'll still sell product, but likely not at a pace they have previously enjoyed. If you intend to hold this even longer than 5 years than the next 6-12 months may be a good building period for a position.

There are other ortho-based healthcare companies you may want to look at that are better diversified in this elective care space.

[brad911]

-> $5.55 of cash per share
-> No debt
-> 2009 EPS should come in ~$2.80
-> Dividend of $0.40 (payout 14%)
-> Goodwill of only 7% of assets
-> Annual growth of BVPS ~26%
-> Strong operating cashflow
-> Trading at 2003 levels

Should I?......Tempted

Call me a GREEDY value investor, but I'm likely to wait for quarterly earnings to catch this under $30. If it happens before I might still take a small initial position considering the future growth prospects of the company.

[Peculiar_Investor]

-> $5.55 of cash per share
-> No debt
-> 2009 EPS should come in ~$2.80
-> Dividend of $0.40 (payout 14%)
-> Goodwill of only 7% of assets
-> Annual growth of BVPS ~26%
-> Strong operating cashflow
-> Trading at 2003 levels

Should I?......Tempted

Call me a GREEDY value investor, but I'm likely to wait for quarterly earnings to catch this under $30. If it happens before I might still take a small initial position considering the future growth prospects of the company.

I haven't updated my analysis, but from media reports the US medical sector is getting whacked by the view of Obama's budget. This may present buying opportunities for long-term investors, particularly in strong franchises that are getting tarred for being in the sector. Given the aging of the American population, I view Stryker as a core holding going forward.

Why would you wait for a round number stock price if you are value investing and looking to hold for the long term. Or are you thinking that once it breaks below 30, it will have broken a barrier and will get cheaper for you?