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Here’s What Will Fuel Stryker’s Long-Term Leveraged Earnings Gain

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Overview

Stryker (SYK) remains upbeat about its growth prospects over the long term. The company announced strong 4Q17 and 2017 earnings results on January 30, 2018. It expects to witness robust sales and earnings across all three of its segments, namely Orthopedics, MedSurg, and Neurotechnology and Spine, going forward.

In 4Q17, Stryker’s sales were impacted by certain Sage product recalls after an FDA warning. Also, the impact of Hurricane Maria and the continued weakness in the spine market weighed on the company’s sales. However, Stryker delivered strong organic sales growth of ~7.1% in 2017 compared to the medical technology industry’s average sales growth of ~4.5% in 2017.

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Despite these challenges, Stryker continued its acquisition momentum in 2017. The company recently acquired Novadaq and Entellus Medical. In 2017, Stryker made an investment of $831 million toward strategic M&As (mergers and acquisitions). The company has a strong history of inorganic growth, and it continues to make M&A investments its top capital allocation priority.

Long-term leveraged earnings

Stryker expects to register leveraged earnings growth driven by its continued investments in M&As over the long term. The company has delivered strong leveraged earnings over the years. In 4Q17, the company registered adjusted diluted EPS (earnings per share) of $1.96, up ~10.1%. For the whole of 2017, Stryker registered adjusted diluted EPS of $6.49 per share, representing a rise of ~12%. The actual EPS results exceeded the company’s guidance for 2017.

Peers Medtronic (MDT), Zimmer Biomet Holdings (ZBH), and Abbott Laboratories (ABT) are expected to report adjusted diluted EPS of $1.39, $1.88, and $0.58, respectively, in their next quarters.

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