EUR 850.00 For Business Accounts Only

Morningstar | Stryker Delivers Stellar 4Q, and Impending Mako Data Could Provide Another Boost

Stryker’s fourth-quarter results were just as impressive as the firm’s general performance over 2017-18, and we anticipate a modest boost to our fair value estimate after incorporating slightly more optimistic expectations for endoscopy, neurotech, and spine in 2019-20. Another stellar quarter underscored Stryker’s wide moat, from our perspective, with novel technology and strong execution fueling double-digit quarterly med-surg and neurotech and spine growth in constant currency. Stryker’s knee implant growth has outpaced the market over the last 11 quarters, thanks to the emphasis on the Mako orthopedic robot.

Stryker saw a particularly strong quarter of Mako placements (54 robots versus 35 in the prior-year period), and we think this was driven partially by the typical seasonal trend toward greater capital spending near year end, as well as more intensity from the salesforce. We expect Stryker will do all it possibly can to place more robots and encourage greater utilization over the next few quarters, now that rival Zimmer Biomet has received the total knee replacement indication on its Rosa robot and will enter with a soft launch in the first half of 2019. We continue to think that both Stryker and Zimmer Biomet are likely to see more favorable growth in knees, while Johnson & Johnson, which won’t have an orthopedic robot ready until 2020 and saw its U.S. knees fall nearly 4% in 2018, could lag its competitors.

Stryker is already seeing robust growth in Mako utilization—up 30% in 2018 versus 2017—and this trend could accelerate if the initial clinical data on Mako outcomes is favorable (expected in March). If the data are positive, we anticipate both Stryker and Zimmer Biomet would benefit. We think that would spur practitioner interest in adopting the robot, and in the case of Stryker, it would also expand the patient pool to include more young patients who would do well with cementless knee replacements.

While cemented knees may work well for older patients who are unlikely to need a revision in the future, cementless knees offer other meaningful benefits to younger patients who likely will need revision 15 years after the initial replacement. In these cases, cementless knees preserve more bone, reduces wear and potential complications from deteriorating cement, and sets up an easier subsequent revision surgery. However, cementless knees are also somewhat trickier because they require a very precise fit. If the Mako robot can help provide that kind of fit, surgeons may feel more comfortable using it on younger patients, instead of counseling them to hold off on a knee replacement.