Stryker's strategy has evolved over the past six years with small acquisitions and new service lines, but will their strategy pay off in an orthopedic device market that demands giants?
A new report in Barron's shows how the company has changed and grown to become the fifth-largest orthopedic device company worldwide. In the Standard & Poor's 500 rating, the company competes with Johnson & Johnson, Zimmer and Medtronic. J&J has been a giant for some time, but with huge acquisitions in 2014 both Zimmer and Medtronic are posed to launch into the stratosphere.
Stryker has taken mergers and acquisitions at a lower level. In 2010, the company paid $1.5 billion for Boston Scientific's neurovascular business and more recently acquired MAKO Surgical for $1.6 billion and China's Trauson Holdings for $765 million. There are rumors Stryker may go for a larger company, such as Smith & Nephew, but that deal is far from a sure bet.
Here are eight key concepts from the report:
1. Stryker stock returned more than 30 percent in the past 12 months, compared to a 13 percent gain by S&P 500.
2. Stryker has a strong balance sheet and "should continue to capitalize on accretive deal-making that drives sales in fast-growing markets and expands its reach outside the U.S.," according to the report.
3. The company is currently at 18.4 times 2015 estimated earnings.
4. In 2013, around 44 percent of the company's revenue was from the reconstructive products business line with $2.5 billion coming from hip and knee sales. Spine was much lower, at 19 percent of revenue.
5. Back in 2009, around 60 percent of Stryker's revenue was generated by orthopedics devices. Now, more diversified lines including medical-surgical business as well.
6. The company has $4.7 billion in cash on the balance sheet — compared to $3.9 billion in debt. This gives them room for more deals.
7. A Smith & Nephew acquisition would strengthen Stryker in sports medicine and trauma.
8. Barron's expects Stryker stock to continue going up — with or without an S&N acquisition. There are other attractive companies Stryker could acquire.