With a daily loss of 2.78% and a 3-month loss of 5.43%, Stryker Corp (SYK, Financial) has recently seen a downturn in its market performance. Despite these figures, the company's Earnings Per Share (EPS) (EPS) stands at a robust 7.08. The question that arises then is whether the stock is fairly valued. This article aims to answer this question by providing an in-depth valuation analysis of Stryker Corp (SYK). Let's delve deeper into the financials and operations of the company to understand its true value.
Stryker Corp (SYK, Financial) is a leading name in the medical equipment industry. The company designs, manufactures, and markets a wide array of medical equipment, instruments, consumable supplies, and implantable devices. With a product portfolio that includes hip and knee replacements, endoscopy systems, operating room equipment, embolic coils, hospital beds and gurneys, and spinal devices, Stryker has established itself as one of the top three competitors in reconstructive orthopedic implants and the leader in operating room equipment. Stryker's current stock price is $279.41, and with a market cap of $106.10 billion, the company's GF Value is estimated to be $306.52, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value is an exclusive method of determining the intrinsic value of a stock. It considers three factors: the historical multiples at which the stock has traded, the GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. As per this calculation, Stryker Corp (SYK, Financial) appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing Stryker's Financial Strength
Investing in companies with poor financial strength can increase the risk of permanent loss of capital. Therefore, it's crucial to review the financial strength of a company before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage can provide a good understanding of a company's financial strength. Stryker has a cash-to-debt ratio of 0.11, which is worse than 91.68% of 841 companies in the Medical Devices & Instruments industry. GuruFocus ranks the overall financial strength of Stryker at 5 out of 10, indicating that the financial strength of Stryker is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Stryker has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $19.50 billion and an Earnings Per Share (EPS) of $7.08. Its operating margin is 18.03%, which ranks better than 80.86% of 836 companies in the Medical Devices & Instruments industry. Overall, the profitability of Stryker is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Stryker is 7.2%, which ranks worse than 50.34% of 731 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth rate is 2.9%, which ranks worse than 59.76% of 738 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Stryker's ROIC was 9.63 while its WACC came in at 9.04.
Overall, Stryker Corp (SYK, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 59.76% of 738 companies in the Medical Devices & Instruments industry. To learn more about Stryker stock, you can check out its 30-Year Financials here.
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