Stock Analysis & Ideas

Is Stryker (NYSE:SYK) Stock a Buy Following Its Q3 Earnings Miss?

Story Highlights

Stryker stock is under pressure following the Q3 earnings miss. However, management’s upbeat sales and earnings outlook should support the recovery.

Shares of medical technology company Stryker (NYSE:SYK) are under pressure following the lower-than-expected Q3 earnings. Despite the Q3 earnings miss and inflationary pressure, management’s upbeat Fiscal 2023 revenue and EPS outlook support the bull case. 

Stryker reported earnings of $2.12 a share in Q3, down 3.6% year-over-year. Further, it missed the analysts’ estimate of $2.23. Inflationary pressure on margins and supply-chain headwinds remained a drag. Given the earnings miss, Stryker stock is down about 5% in the after-hours of trade. 

Stryker posted revenues of $4.5 billion, up 7.7%, despite adverse currency movement. Its top line continues to benefit from strong organic sales that increased by 9.9% in Q3. 

As for Fiscal 2023, Stryker’s top line is expected to benefit from high customer demand and new product launches. Meanwhile, management remains upbeat and expects its Fiscal 2023 earnings to return to solid growth despite inflationary pressures and supply chain challenges. Higher pricing and cost reduction measures will likely cushion its earnings in 2023.

In response to Stryker’s Q3 financial result, BTIG analyst Ryan Zimmerman said, “SYK’s top-line growth appears secure as mgmt. continues to see contributions from a variety of areas into FY23 despite nagging supply chain pressures extending order book revenue realization.” 

Zimmerman expects SYK to see pressure following the Q3 earnings announcement. However, the analyst is bullish about SYK stock and added, “SYK’s ability to grow the top line remains intact, and we think weakness is eventually bought given the durability of SYK’s top line.”

Is SYK a Good Stock to Buy?

On TipRanks, SYK stock is a Moderate Buy based on five Buy and two Sell recommendations. Further, these analysts’ average price target of $244.14 implies 6.5% upside potential. 

It’s worth highlighting that Stryker stock is trading at a premium compared to its peers. Its forward Price-to-Earnings multiple of 24.5 is higher than the sector median of 19.26. “Even if Stryker’s premium valuation is more expensive, we respect the execution and believe Stryker is worth owning on a 12-24 month basis,” noted Zimmerman.

Bottom Line 

Strong demand, new product launches, and higher pricing will likely drive Stryker’s top line in Fiscal 2023. Further, cost reduction will likely cushion its bottom line. However, inflation, adverse currency movements, and supply challenges could continue to hurt its financials in the short term. 

Disclosure 

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