Assessing Stryker (SYK) Valuation After New Trauma Launch And Better Than Expected Earnings

Why Stryker’s new trauma product launch matters for shareholders

Stryker (SYK) is back in focus after launching its T2 Alpha Humerus Nailing System, a new trauma product aimed at complex upper arm fractures, alongside earnings that exceeded market expectations and an optimistic management outlook.

Together, the product launch and earnings update give you two angles to think about: how Stryker is trying to deepen its trauma and orthopedics offering, and how current demand trends are feeding through to reported results.

See our latest analysis for Stryker.

Recent news has come thick and fast for Stryker, from the new T2 Alpha Humerus Nailing System and the limited market release of Mako RPS, to a higher quarterly dividend and completion of a long running buyback program. Over the same period, the share price has generally trended higher in the short term, with a 7 day share price return of 2.17% and a year to date share price return of 5.13%. The 1 year total shareholder return of a 4.09% decline contrasts with a 3 year total shareholder return of 43.20% and 5 year total shareholder return of 59.21%, suggesting long term holders have still seen meaningful compounding.

If Stryker’s push in robotics and trauma care has caught your eye, it might be a good moment to see what else is developing in related areas with 25 healthcare AI stocks as another potential hunting ground.

With Stryker trading at $366.05, carrying an intrinsic value estimate that is roughly 2% above the market price and sitting about 16% below the average analyst target, you have to ask: is there still a reasonable entry point here, or are expectations for future growth already fully reflected?

Most Popular Narrative: 13.1% Overvalued

According to Tokyo’s widely followed narrative, Stryker’s fair value of $323.52 sits below the recent $366.05 share price, which naturally raises questions about what the market is pricing in.

Investing in Stryker (SYK) should be an easy ride. Key “Take aways”:
• Solid balance sheet
• Earnings recovered, with positive outlook.
• SYK is fair priced.
• ROE over industry average (past and future)

Stryker has a solid balance sheet. I always want to see more equity than debt, which is the case with $19.2b (equity) versus $12.9b (debt) and leads to a debt to equity ratio of 67%. If we even take the cash position into account, which is $2.4b, the debt may be reduced to $10.5b, and we end up with a net debt to equity ratio of 54%.

The earnings finally recovered after the drop caused by Corona pandemic, so we are in 2024 back at $3.4b of earnings. According to the analysts the positive trend should continue, with increasing EPS at an EPS Growth rate of 10.6% and an EPS E2026 of $13. And all that we can still get at its fair price? What’s the catch?

The fair price is calculated on a DCF model, based on the future Free Cash Flows. I use to focus on today’s FCF compared to in 3Y:
FCF 2024: $3.5b
FCF 2027: $5.0b
And there we have it, SYK must deliver very well within the next three years.

I always have a look on return on equity ROE:
With a ROE of 17.5% and future ROE of 21.9%, my money is working well.
Future Earnings growth rate is 10.5%, ok for an easy ride.

Fair Value: With 6% return p.a. and discount rate of 6%, I get a fair value of $323.

PS: The risk alert from the tool “significant insider selling over the past 3 months” is no risk at all. The seller is not from management, it is Ronda Stryker, a grand child of the founder.

Read the complete narrative.

Curious how a steady earnings path, firm free cash flow targets and rising return on equity all combine into that $323.52 number? The narrative leans on specific growth, margin and cash conversion assumptions that you will probably want to see for yourself before you decide how this trauma and robotics story fits into your watchlist.

Result: Fair Value of $323.52 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, you still need to watch for any stumble against those free cash flow goals or a shift in hospital spending that cools current demand momentum.

Find out about the key risks to this Stryker narrative.

Build Your Own Stryker Narrative

If you are not fully convinced by this take, or prefer to work through the numbers yourself, you can build a custom story in minutes by starting with Do it your way.

A great starting point for your Stryker research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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