Pricey Stryker Needs a Deal to Spur Healthy Growth
NEW YORK (TheStreet) — Medical device giant Stryker (SYK_) has rewarded investors with year-to-date gains of close to 12%. On its own, that’s not a breathtaking number. But when compared to the 7% gain of the medical devices sector, according to Morningstar, it’s tough to complain.
It’s also tough to argue against how expensive these shares have gotten. Currently, they trade around $83.50.
This now pushes Stryker’s price to price-to-earnings ratio past 41. That’s 13 points higher than the industry average P/E of 28, according to Yahoo! Finance.
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Investors can have both St. Jude Medical (STJ_) and Medtronic (MDT_) at much cheaper multiples of 25 and 21, respectively. St. Jude and Medtronic both outperform Stryker in gross margin and operating margin.
While the company has done a decent job addressing a wider range of markets within medical technology, the company reconstructive business continues to struggle, growing just 2.5% in the most recent quarter and trailing the likes of Johnson & Johnson (JNJ_) , up 3%, and Biomet, which reported 4% in its most recent report before its pending acquisition.
Johnson & Johnson trades at a P/E that is 22 points lower and pays a 2.80% dividend compared to a 1.50% yield for Stryker. Even if we were to use the “investors are paying for growth” argument, Stryker would still be at a deficit to Johnson & Johnson, which is growing a 9% rate compared to 7% for Stryker.
So where’s the value?