Surpassing Milestones in Spine and Neurovascular Sectors Fuels Global Expansion and Robust Revenue Growth

What are the underlying business or industry changes driving this perspective?

• The company's commercial execution and successful product introductions across various segments are likely to drive future revenue growth.
• The company's strong pipeline of innovation and recent acquisitions, particularly in Spine and Neurovascular, demonstrate a forward-looking growth strategy that can significantly enhance future revenue prospects and earnings growth.
• International sales growth, particularly in Canada, Australia, and emerging markets, outpacing U.S. business for the sixth straight year highlights a large growth opportunity internationally. This international expansion is expected to contribute positively to revenue growth.
• The focus on driving high growth through investments in organic innovation and mergers and acquisitions (M&A) suggests a strategic plan to further solidify market position and drive long-term revenue and earnings growth.
• The adjusted earnings per share (EPS) growth driven by strong sales performance and continued operating margin recovery highlights operational efficiency improvements. This operational leverage is expected to positively impact net margins and earnings going forward.

How have these above catalysts been quantified?

• Analysts are assuming Stryker's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.4% today to 19.0% in 3 years time.
• Analysts expect earnings to reach $4.9 billion (and earnings per share of $12.64) by about March 2027, up from $3.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.1x on those 2027 earnings, down from 42.7x today.
• To value all of this in today’s dollars, we will use a discount rate of 6.69%, as per the Simply Wall St company report.

What could happen that would invalidate this narrative?

• The reliance on key acquisitions for growth and innovation could pose risks if integration challenges arise or if expected synergies fail to materialize, impacting earnings.
• Changes in healthcare reimbursement or regulatory environments may impact demand for Stryker's products, affecting revenue.
• Geopolitical tensions or trade disputes could disrupt the supply chain or increase costs, potentially reducing net margins.
• Competitive pressures, especially in the rapidly evolving orthopedics and medical technology market, could erode market share and affect revenue.
• Global economic fluctuations or downturns could reduce hospital capital expenditure budgets, potentially decreasing demand for Stryker's capital equipment products, impacting revenue.

• The analysts have a consensus price target of $356.76 for Stryker based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with this, you'd need to believe that by 2027, revenues will be $25.5 billion, earnings will come to $4.9 billion, and it would be trading on a PE ratio of 32.1x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $355.64, the analyst's price target of $356.76 is 0.3% higher. The relatively low difference between the current share price and the analyst target indicates that they believe the company is fairly priced.
  
• 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.