Brean Upgrades Stryker To Buy Following 'Solid' Earnings Report

• Amid volatility, Stryker Corporation (NYSE: SYK) shares are down 5 percent in the last six months.
• Brean Capital’s Jason Wittes upgraded the rating for the company from Hold to Buy, while establishing a price target of $115.
• Wittes believes that the concerns around the company’s growth may be unfounded.

Stryker reported its 4Q15 and FY2015 results broadly in-line with its preliminary results. Revenues came in at $2.7 billion for 4Q15, representing 3.7 percent growth and at $9.9 billion for FY2015, representing 2.8 percent growth. These were in-line with consensus.

Adjusted EPS for 4Q15 and FY2015 were reported at $1.56 and $5.12, at the high-end of the guidance range. Sales during the quarter were boosted by acquisitions and increased unit volume, but were offset by currency impact and pricing. “Earnings quality was strong, with strong gross and net margins,” analyst Jason Wittes said.

Sales in the emerging markets of China and Brazil could remain challenging into FY2016, Wittes commented. There is concern regarding the lack of new acquisitions beginning to impact growth. The analyst noted, however, “We aren’t as concerned, and in fact like the 2016 outlook, which targets a very respectable 5-6% organic growth on the top line driven by a very attractive portfolio of businesses.”

Several of the businesses, especially Spine, MAKO and Europe, are repositioned for improved growth, while others, like Neuro, Trauma, MedSurg, and Hips and Knees businesses should continue to perform well.

Wittes mentioned, “Investors should also appreciate that SYK has a lot of flexibility with operating expenses and share buybacks that significantly mitigates P&L risk and provides some upside opportunities.” Moreover, FY2017 could be a transformative year, with the launch of the company’s total knee on the MAKO platform.