Why Is Stryker (SYK) Up 5% Since Last Earnings Report?

A month has gone by since the last earnings report for Stryker (SYK). Shares have added about 5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Stryker due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Stryker Q1 Earnings and Revenues Surpass Estimates

Stryker Corporation reported first-quarter 2020 adjusted earnings per share of $1.84, which beat the Zacks Consensus Estimate of $1.69 by 8.9%. However, the bottom line declined 2.1% year over year due to the impact of the COVID-19 pandemic.

The Michigan-based medical device company reported revenues of $3.59 billion, which surpassed the Zacks Consensus Estimate by 5.4%. The top line improved 2% on a year-over-year basis and 2.4% at constant currency (cc).

Revenues by Geography

Revenues in United States came in at $2.64 billion, up 2.5% year over year. International sales were up 0.8% to $945 million.

U.S. organic sales improved 2% and international organic sales rose3.3%. While solid performance across Orthopaedics, MedSurg and Neurotechnology segments drove growth in the United States, favorable performance in Japan, Canada and smaller countries in Europe and emerging markets led to higher international organic sales.

Segmental Analysis

Orthopaedic: In the quarter under review, revenues in the segment totaled $1.22 billion, down 2.1% year over year. The segment’s revenues declined 1.2% at cc. The downside can be attributed to weak performance at the Knees, Hips and Trauma and Extremities sub segments.

MedSurg: This segment reported sales of $1.62 billion, up 6.2% year over year. Sales at the segment increased 7% at cc. Per management, the segment improved 6.3% organically in the reported quarter, led by strong Instruments, Sustainability and Medical performances.

Neurotechnology and Spine: Sales in the segment amounted to $744 million, up 0.7% year over year and 1.5% at cc. Organically, the segment witnessed growth of 0.3%. Per management, the upside was driven by solid performance by the neurotech product lines.

Margins

In the first quarter, adjusted gross profit totaled $2.34 billion, up 1.3% from the year-ago quarter. Adjusted gross margin was 65.3%, down 50 basis points (bps).

Adjusted operating income amounted to $862 million, down 2.2% from the prior-year quarter. Adjusted operating margin was 24%, down 110 bps.

Financial Update

Cash and cash equivalents came in at $3.96 billion, down 8.6% from the year-end 2019.

Net cash provided by operating activities in the first quarter came in at $591 million, which soaring 88.8% from the year-ago period.

2020 Outlook

Due to the uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, and the timing of global recovery and economic normalization, the company is unable to project the overall impact on its operations and financial results. Consequently, the company is not providing second-quarter or full-year 2020 organic sales or earnings outlook.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -40.02% due to these changes.

VGM Scores

At this time, Stryker has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Stryker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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