Stryker: Growth Through Acquisition Impressive
August 12, 2016 – By Keith Williams
Diversified, vertically integrated with emphasis on medical devices (knees, hips, extremities), operations and surgical instruments, endoscopy, neurovascular; no segment more than 16%.
Market still mostly US, but focus on emerging markets.
Sales growth 2016 expected to be 6%-6.5%.
Acquisitions expand reach; in 2016, Sage Products grows Surgery & Medical, Physio Control builds cardio business and Stanmore Implants builds Stryker’s implant oncology offerings.
Acquisitions are commonly stressful and messy, with lots of disruption both within the acquiring company and also the acquired. There is usually retrenchment, battles for power and much distraction while it gets sorted. A company that seems to do it differently is Stryker (NYSE:SYK). I’ve been impressed for some time how this company approaches growing its business, with acquisition a major plank in that process. It seems to be the exception to the rule. Everything about the process suggests respect and maintaining focus while driving the combined business forward from day one.
Snapshot of the business
Stryker has a proud record of 35 years of sales growth. While the Q2 adjusted earnings of $1.39/share beat analyst estimates, and organic sales growth was 6.6% for Q2, the stock fell ~3% on suggestion of softness in Q3. Sales growth for 2016 is expected to be 6-6.5% and earnings/share $5.70-5.80.
While the US dominates Stryker’s market at 68% and in Q2 it provides the best organic growth (up 8.6%), growing the international markets is a focus, even though organic sales were up just 2% in Q2. China was mentioned as part of the international challenge.
Focusing solely on the short-term numbers sometimes misses what a business is doing. Here I review what management said in the Q2 analyst briefing. I suggest it shows a company in full flight, with many ambitious programs developing well.
Stryker is a broadly diversified business with no segment more than 16% of total revenue. This provides great resilience.