Stryker Earnings Rise - TheStreet

Stryker Earnings Rise

It hits profit targets.
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(SYK) - Get Report

is on the ball.

The giant orthopedics device maker on Thursday hit profit targets -- and beat revenue estimates -- for the second quarter. Sales jumped 16% to $1.46 billion, due to strength in both the company's orthopedics and its medical-surgical businesses. Net income increased at a slightly lower rate, rising 13% to $240 million, because of a one-time impairment charge. Excluding special items, however, operating profits surged 17% to 61 cents a share and matched Wall Street forecasts exactly.

Stryker expects to meet analyst projections for full-year earnings of $2.40 a share as well.

"We are encouraged to report accelerating growth rates for our orthopedic implant and MedSurg franchises in both the United States and globally," Stryker stated on Thursday. Moreover, "the company's outlook for 2007 continues to be optimistic regarding underlying growth rates in orthopedic procedures and sales growth rates in the company's broadly based range of products in orthopedics and other medical specialties despite the potential for continued pricing pressure in certain markets."

Stryker's stock inched up 27 cents to $67.59 ahead of the company's quarterly update. The shares are trading near the high end of their 52-week range.

In a brief research note published last week, BMO Capital Markets analyst Joanne Wuensch predicted that Stryker would report strong second-quarter results - beating crucial top-line estimates - and enjoy positive momentum going forward. She, therefore, reiterated her outperform rating and $75 price target on the company's stock.

Wuensch's firm has provided non-investment banking services to Stryker in the past and counts the company as a client of the firm.

In contrast, Leerink Swann analyst Jason Wittes braced investors for a possible second-quarter miss. Although Wittes views Stryker as a safer bet than its peers, due to the company's diverse business mix, he remains cautious on the orthopedics device sector overall.

Wittes has a market-perform rating on Stryker's stock, which he values at $63 a share.

Recently, however, Stryker gave analysts a new reason to feel bullish about the company's prospects. In early July, Stryker announced that the

U.S. Food and Drug Administration

had approved a groundbreaking hip technology that the company plans to start marketing this quarter.

The Cormet Hip Resurfacing System, which is made by British-based Corin but will be sold by Stryker, ranks as only the second product of its kind that has been blessed by U.S. regulators.

Smith & Nephew's

(SNN) - Get Report

Birmingham Hip Replacement System - Cormet's only competition - hit the U.S. market last year and has enjoyed robust sales ever since.

Experts look for the new Cormet system to become a resounding success as well. If that happens, Stryker's hip division - long in need of a new blockbuster - can join the company's other core units in boasting exceptional results.

"The approval of Cormet is a positive for Stryker, as we believe it will help revitalize a segment of the company's orthopedic business that has had disappointing growth for nearly two years," Canaccord Adams analyst William Plovanic wrote on July 5. "The approval is one quarter ahead of our previous launch expectations (and) will allow Stryker to position itself in a relatively untapped market."

Hip resurfacing offers a new alternative to young patients who may need full hip replacements down the road. In Europe - where it has been available for some time - hip resurfacing accounts for about 10% of the hip surgery market.

Due to the rising popularity of hip resurfacing, Plovanic feels that the new Cormet system will become a "significant contributor" to Styker's hip sales going forward. In fact, he suggests that his own projections for the new product could wind up looking conservative in the end.

"It is important to note that our market assumptions do not take into account expansion of the hip implant market - which could be a likely result of resurfacing systems geared toward the younger, more active patients," he stressed. "Additionally, Smith & Nephew's Birmingham revenues have exceeded initial penetration estimates (already). Given the addition of more product options with the launch of Cormet, backed by Stryker's expansive distribution network, we would anticipate large procedure volume growth for hip resurfacing" both this year and next.

Plovanic has a buy recommendation and an $87 price target on Stryker's shares. His firm hopes to secure investment banking business from the company going forward.