Stryker Strikes Back

Leerink Swann, which has provided non-securities services to Stryker over the past 12 months, currently has a market-perform rating on the company's stock.

Wittes listed a number of disappointments from the company. He blamed Stryker's revenue shortfall on the company's core implant business, citing weak hip sales in particular. He also noted that Stryker's earnings, while in-line with other forecasts, fell short of his own expectations. He pointed to a drop in implant pricing as a culprit.

Looking ahead, Wittes believes those pricing pressures will last. For starters, he pointed out, Stryker expects prices to drop 5% to 6% in Japan this year -- which is actually less than many had anticipated -- with a similar cut planned for 2007. Meanwhile, he said, pricing pressures continue to mount in the U.S.

Moreover, he indicated, those pressures will continue whether Stryker keeps giving HCA (HCA Quote) -- the nation's largest hospital chain -- big discounts or not.

"The company ... mentioned in the periphery that it will look to renegotiate its HCA contract next year," Wittes wrote. "Both sides continue their rhetoric. But we still view this as a diversion, as pricing pressure has spread well beyond HCA."

Even so, Stryker is now promising to grow profits by 21% -- even better than its normal 20% -- in the current year. However, Wittes believes those profits will be of lower quality than usual due to "decelerating price and mix momentum" in the company's core business. He has, therefore, maintained his cautious view on Stryker's stock and the industry overall.