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Needham analyst Mike Matson upgraded Stryker Corp (NYSE:SYK) from Hold to Buy and a $392 price target.
Matson expects new product launches combined with SYK’s capital equipment backlog to allow it to deliver upside to consensus revenue estimates and overcome any potential recon market slowdown.
SYK expects significant margin improvement in 2024-2025. The analyst expects revenue upside to translate into EPS upside.
SYK also expects to increase its M&A activity, and Matson expects deals to serve as positive catalysts.
Considering its double-digit organic revenue growth potential, Matson noted that SYK shares are attractive.
The analyst expects new product launches and SYK’s capital equipment backlog to support upside to consensus and overcome any potential recon slowdown.
Pangea is a significant product launch for SYK’s Trauma & Extremities business, which Matson expects to drive additional trauma share gains.
The analyst noted Mako Shoulder and Spine as growth drivers for these respective businesses.
SYK has also indicated that its capital order backlog is strong, and the analyst noted this will provide a tailwind for MedSurg.
While Matson noted that the recon market may slow in the next year or two, recon is only 18% of SYK’s sales, and a 4-5% slowdown would only reduce its growth by 70-90 bps.
SYK expects significant margin improvement in 2024-2025. It has guided to ~200 bps of operating margin improvement by the end of 2025.
Management expects this improvement to be driven by pricing, moving manufacturing to lower-cost sites, in-sourcing production, IT system harmonization, and operating leverage.
While this is largely reflected in consensus, Matson expects SYK’s EPS growth to outpace its peers in 2024 and 2025. He also noted the potential for upside to consensus EPS from revenue upside instead of margin upside.
SYK expects to increase its M&A activity, and Matson expects deals to be positive catalysts.
The analyst noted that additional tuck-in deals are most likely, and given its successful M&A track record, he expects deals to serve as positive catalysts.
Matson projected second-quarter revenue and EPS of $5.398 billion and $2.79.
Price Action: SYK shares are up 1.32% at $334.78 at the last check on Wednesday.
Posted In: SYK
