International Expansion And Mako Launches Will Boost Future Position

Key Takeaways

• Successful international expansion and robotic-assisted surgeries are set to drive significant future revenue growth in targeted segments.
  
• Strategic acquisitions and product launches are boosting earnings and expected to maintain or improve net margins amidst economic headwinds.
  
• Tariffs, foreign exchange volatility, and supply chain disruptions could challenge Stryker's margins, revenue growth, and financial stability in the short term.

Catalysts

Operates as a medical technology company.

• The successful international expansion, with notable strength in Australia, New Zealand, Japan, and Europe, is expected to significantly drive future revenue growth.
  
• The upcoming launches of Mako Spine and Mako Shoulder are poised to enhance their Robotics and Orthopaedics segments, likely positively impacting future revenue.
  
• The acquisition and integration of Inari Medical, along with momentum from prior acquisitions, are expected to boost Stryker’s earnings, as these acquisitions are performing well against internal expectations.
  
• The continued adoption and utilization of robotic-assisted surgeries, such as the Mako systems, alongside new product launches like the LIFEPAK 35 defibrillator, are expected to drive revenue growth in targeted segments.
  
• The company plans to counteract tariff impacts and other headwinds through sales growth, price optimization, and supply chain efficiencies, which should help maintain or even improve net margins.

Stryker Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Stryker's revenue will grow by 8.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 17.7% in 3 years time.
• Analysts expect earnings to reach $5.2 billion (and earnings per share of $13.74) by about May 2028, up from $2.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $6.1 billion in earnings, and the most bearish expecting $4.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.5x on those 2028 earnings, down from 50.5x today. This future PE is greater than the current PE for the US Medical Equipment industry at 30.3x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.18%, as per the Simply Wall St company report.

Stryker Future Earnings Per Share Growth

Risks

• The imposition of tariffs and the associated $200 million cost estimate for Stryker could negatively impact its cost of goods sold, potentially compressing gross margins and affecting net earnings if mitigation strategies are insufficient.
  
• Although Inari Medical's integration is underway, the deal's cash and debt financing could increase interest expenses and cash flow challenges, impacting net profit margins due to higher financial obligations.
  
• Continued supply chain disruptions, especially affecting the Medical business, could hinder sales through product availability issues, potentially affecting revenue growth projections, particularly in the upcoming quarters.
  
• The shift towards more rental arrangements for surgical robotics, including Mako systems, could delay revenue recognition and alter revenue patterns, impacting revenue growth expectations in the short term.
  
• Potential fluctuating foreign exchange rates, with Q1 noting a $0.03 unfavorable impact, could introduce revenue and earnings volatility depending on future currency movements if rates remain, negatively impacting international sales contributions.

Valuation

• The analysts have a consensus price target of $424.255 for Stryker based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $465.0, and the most bearish reporting a price target of just $306.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.4 billion, earnings will come to $5.2 billion, and it would be trading on a PE ratio of 38.5x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $377.52, the analyst price target of $424.26 is 11.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.