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Morningstar | Stryker Posts Another Strong Quarter With Contributions From Across All Segments

Stryker delivered another strong quarter of top- and bottom-line results in the first quarter, and our minor adjustments to our model haven’t shifted our valuation. Despite notable foreign currency headwinds, Stryker posted impressive revenue growth, supported by robust demand across all three of its product segments. While we’ve long admired Stryker’s wide moat, which stems from intangible assets and switching costs, the current management team has added topspin with savvy acquisitions and topnotch execution. At this point, we see little that would derail Stryker’s performance--the outside chance that rival Zimmer Biomet kicks its sales performance into high gear and uses its Rosa robot to edge out Stryker’s Mako robot, or an unforced error by Stryker, as it seeks to integrate its more recent acquisitions.

Stryker has now racked up 14 consecutive quarters of above-market growth in knee sales, spurred by the Mako robot. In the last two years, Stryker has overtaken Johnson & Johnson as the number two competitor in knee implants. The same dynamic was on display in the first quarter with Stryker’s knees growing 7.0%, while J&J’s knees fell 1.9% in constant currency. Now that Zimmer Biomet has entered soft launch with Rosa, we anticipate its knees will see slightly stronger growth in the low-single-digit range this year, but we remain less certain that it can outpace Stryker’s knee growth.

Consistent with other quarters, price fell 2.1% in Stryker’s orthopedic segment. We think this compares well to J&J, which saw orthopedic price erosion around 3.0%, by our estimates. We think Stryker has been able to stave off price declines more successfully because it is shifting its joint mix toward the higher-priced cementless knees, which are more attractive because the Mako robot allows for a more precise fit. Once Zimmer Biomet reports in a few days, we'll have a more comprehensive sense of first-quarter orthopedic competition.

Aside from orthopedics, we’d be remiss if we didn’t also acknowledge the strength Stryker has seen in its med-surg and neurovascular units. Instruments saw nearly 18% organic quarterly growth, while beds, stretchers, and Sage consumables drove 10% quarterly growth, both in the U.S. We remain enthusiastic about Stryker’s Trevo stent retriever, as the clinical evidence continues to grow in support of its use for acute ischemic stroke. Now that stent retriever therapy is considered standard of care for ischemic stroke, we expect to see steady adoption over the next couple of years.