Analyst Note| Debbie S. Wang |
Stryker delivered a strong third quarter, helped along by the addition of Wright Medical, but softness in orthopedics led the firm to pull back on its outlook for the full year, causing shares to bobble in after-hours trading. We stick with our $190 fair value estimate, as our slight revisions to reflect further delays in orthopedic procedure volume in the near term weren’t enough to materially shift our valuation. Further, the firm remains on track with cost controls to meet our projections on the bottom line for the full year. The weakness in orthopedics and spine were more than offset by strong organic growth in medsurg and neurotech, which underscores the strength of Stryker’s wide moat, in our view. Aside from its formidable position in orthopedics, Stryker also has a long track record of generating meaningful innovation in its instruments, patient transportation, embolic coils, and thrombectomy systems for stroke patients. All of that adds to its well of intangible assets, and we surmise there may also be some switching costs associated with the stroke devices and delivery systems.