Medical Stocks

Stryker Corp Valuation – February 2019 $SYK

Company Profile (excerpt from Reuters): Stryker Corporation (Stryker), incorporated on February 20, 1946, is a medical technology company. The Company offers a range of medical technologies, including orthopedic, medical and surgical, and neurotechnology and spine products. The Company’s segments include Orthopaedics; MedSurg; Neurotechnology and Spine, and Corporate and Other. The Orthopaedics segment includes reconstructive (hip and knee) and trauma implant systems and other related products. The Company’s MedSurg segment consists of instruments, endoscopy, medical and sustainability products. The Neurotechnology and Spine segment includes neurovascular products, spinal implant systems and other related products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SYK – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $68,070,990,264 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.02 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 99.40% Pass
6. Moderate PEmg Ratio PEmg < 20 28.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.92 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.02 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.72 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.52
MG Growth Estimate 15.00%
MG Value $250.97
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $94.52
MG Value based on 0% Growth $55.41
Market Implied Growth Rate 9.76%
Current Price $182.66
% of Intrinsic Value 72.78%

Stryker Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.83 in 2015 to an estimated $6.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.76% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Stryker Corporation revealed the company was trading above its Graham Number of $75.02. The company pays a dividend of $1.93 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 28.02, which was below the industry average of 51.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.17.

Stryker Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.17
Graham Number $75.02
PEmg 28.02
Current Ratio 2.02
PB Ratio 5.92
Current Dividend $1.93
Dividend Yield 1.06%
Number of Consecutive Years of Dividend Growth 9

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $9,733,000,000
Total Current Liabilities $4,807,000,000
Long-Term Debt $8,486,000,000
Total Assets $27,229,000,000
Intangible Assets $12,726,000,000
Total Liabilities $15,499,000,000
Shares Outstanding (Diluted Average) 380,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.98
Dec2018 $9.34
Dec2017 $2.68
Dec2016 $4.35
Dec2015 $3.78
Dec2014 $1.34
Dec2013 $2.63
Dec2012 $3.39
Dec2011 $3.45
Dec2010 $3.19
Dec2009 $2.77
Dec2008 $2.78
Dec2007 $2.44
Dec2006 $1.89
Dec2005 $1.57
Dec2004 $1.08
Dec2003 $1.07
Dec2002 $0.81
Dec2001 $0.67
Dec2000 $0.55
Dec1999 $0.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.52
Dec2018 $5.29
Dec2017 $3.16
Dec2016 $3.30
Dec2015 $2.83
Dec2014 $2.50
Dec2013 $3.08
Dec2012 $3.24
Dec2011 $3.09
Dec2010 $2.81
Dec2009 $2.51
Dec2008 $2.24
Dec2007 $1.85
Dec2006 $1.46
Dec2005 $1.18
Dec2004 $0.93
Dec2003 $0.78

Recommended Reading:

Other ModernGraham posts about the company

Stryker Corp Valuation – April 2018 $SYK
Stryker Corporation Valuation – August 2016 $SYK
Stryker Corporation Valuation – January 2016 Update $SYK
Stryker Corporation Analysis – October 2015 Update $SYK
Stryker Corporation Analysis – July 2015 Update $SYK

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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