Goldman Sachs Maintain Neutral on Stryker
Wednesday, January 25, 2022 10:18 AM

Goldman Sachs has maintained its Neutral rating on Stryker (SYK) shares and retained the 12-month price target of $53. The brokerage views that outlook is relatively balanced.

On the positive side, the company is managing its selling, general and administrative costs structure aggressively to adjust to the new reality of is top line and mix of businesses to provide organic top line growth towards the high end of peers, i.e. plus 3.5 percent versus peers plus 2.5 percent.

On the flip side, analyst Donald Roman sees sustained headwinds will challenge objectives for double-digit EPS growth through 2013. This is due to gross margins likely to remain under pressure and opportunities for innovation in orthopaedics are likely to be capped. Additionally, the company needs to invest for growth in new markets, geographic as well as therapeutic.

The company announced its fourth quarter results on January 24 with revenues mirroring pre-announced sales of $2.2 billion on January 10. Stryker’s adjusted EPS for fourth quarter came in line with Street estimation of $1.02 and above Goldman Sach’s prediction of $1.01. Significantly, gross margin declined due to less favorable mix, pricing pressure and negative manufacturing variances. The brokerage believes that the trend will continue in 2012 too.

Goldman Sachs sees the 2013 EPS growth objective as too aggressive. The company had indicated EPS growth pre-MedTech tax would need to approach 17 percent upside. The brokerage believes that this should allow revenue to increase about 9 percent by its estimates or a major share buy back.

The analyst listed key risks for downside as pricing pressure and share loss, while on the upside synergistic M&A, higher return of cash to shareholders and recovery in key markets.