NEW YORK (TheStreet) -- It wasn't that long ago when the major concern about Stryker (SYK - Get Report) was whether the company had enough legal expertise to navigate issues related to the company's artificial hip implants. They were considered faulty and had made it to the recall list.
As a consequence, the Street turned sour on Stryker's stock. And these shares began trading at a noticeable discount to fair value. Investors questioned whether the stock was worth the trouble. After a recent change in management, growth is starting to pick up in areas like joint reconstruction. With shares now at 52-week highs on strong margin improvements, I can't say Stryker is a bargain today. It's hard nonetheless to bet against a company with momentum now firmly on its side.
With fourth-quarter revenue climbing more than 5% year over year, Stryker ended the 2013 campaign on a strong note. Although growth has returned to the entire industry, on an organic basis, Stryker's 6% results stood out pretty firmly from other well-run medtech companies like Medtronic (MDT) and Covidien (COV).
Growth was led by the Reconstructive business, which advanced 8% year over year. There were concerns that the company had begun to cede market share to Johnson & Johnson (JNJ) due to product recalls. But management found ways to grow 8% in that all-important hip category. This is while revenue in knees grew almost 5%.It's true that the company didn't outperform Johnson & Johnson, which grew knees by 8%. But Johnson & Johnson has not had these sorts of deficits to work with. Nor should investors have expected Stryker to post numbers anywhere near what the company actually produced. Investors shouldn't dismiss the solid 12% growth in the trauma and extremities segment, either. Medical instruments posted more than 7% growth. As much as I've followed Stryker over the past several quarters, I have to say that this was by far an unexpected occurrence. On a relative basis, the company had not shown any signs of strength in instruments for some time. And there were concerns that, among others, Covidien (which had begun to apply pricing pressure) was beginning to steal market share. But there was no evidence of that in the earnings report. Without further evidence, I'm not ready to say that Stryker is suddenly dominating the markets in instruments. But the results I've seen from Covidien and Johnson & Johnson do support the notion that there has been a broad recovery within the entire industry.