Investing in Stryker (SYK) should be an easy ride

Investing in Stryker (SYK) should be an easy ride

Key “Take aways”:

- Solid balance sheet

- Earnings recovered, with positive outlook.

- SYK is fair priced.

- ROE over industry average (past and future)

Stryker has a solid balance sheet, I always want to see more equity than debt, which is the case with $19.2b (equity) versus $12.9b (debt) and leads to a debt to equity ratio of 67%. If we even take the cash position into account, which is $2.4b, the debt may be reduced to $10.5b, and we end up with a net debt to equity ratio of 54%.

The earnings finally recovered after the drop caused by Corona pandemic, so we are in 2024 back at $3.4b of earnings.

According to the analysts the positive trend should continue, with increasing EPS at an EPS Growth rate of 10.6% and an EPS E2026 of $13.

And all that we can still get at it’s fair price? What’s the catch?

The fair price is calculated on a DCF model, based on the future Free Cash Flows. I use to focus on today’s FCF compared to in 3Y:

FCF 2024: $3.5b FCF 2027: $5.0b

And there we have it, SYK must deliver very well within the next three years.

I always have a look on return on equity ROE:

With a ROE of 17.5% and future ROE of 21.9%, my money is working well.

Future Earnings growth rate is 10.5%, ok for an easy ride.

Fair Value: With 6% return p.a. and discount rate of 6%, I get a fair value of $323.

PS: The risk alert from the tool “significant insider selling over the past 3 months” is no risk at all. The seller is not from management, it is Ronda Stryker, a grand child of the founder.

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Disclaimer

The user Tokyo has a position in NYSE:SYK. Simply Wall St has no position in any of the companies mentioned. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.