Stryker

(SYK) - Get Report

is holding steady.

The orthopedic device maker on Thursday met fourth-quarter profit expectations and reassured investors who have been rattled by pricing concerns. The company cited rising sales of orthopedic devices for its growth.

Stryker saw fourth-quarter revenue climb 11% to $1.28 billion, just shy of Wall Street forecasts. Net income, excluding currency changes, rocketed 22% to $198 million. And earnings per share jumped 20% to match the 48-cent consensus estimate exactly.

On a constant-currency basis, Stryker posted an 11% rise in orthopedic sales during the latest quarter. It reported an 18% jump in medical/surgical equipment sales as well.

Meanwhile, Stryker promised stronger growth ahead. Specifically, the company said it now expects total sales to increase by 11% to 14% this year. And it looks for profits to jump by 21% to $2.02 a share. Analysts were looking for full-year earnings of $2.09.

"The company's outlook for 2006 continues to be optimistic regarding underlying growth rates in orthopedic procedures and the company's broadly based range of products in orthopedics and other medical specialties," Stryker said, "despite the potential for increased pricing pressure on orthopedic implant products in the United States, Japan and certain other foreign markets."

The company's stock, which rose 25 cents to $44.33 during the regular session Thursday, added 17 cents in after-hours trading.

William Blair analyst Ben Andrew had predicted that Stryker would fall short of top-line estimates for the quarter. Andrew looked for Stryker to report hip growth of "only 1%" and knee growth of 11% for the latest period. He -- like many -- was also looking for new color on the prices being charged for those particular products.

"A key reason as to why the orthopedic sector had a very difficult second half in 2005 was investor concern about eroding pricing, both domestically and internationally," noted Andrew, who has an outperform rating on Stryker's shares. "However, Stryker -- along with others in the industry -- has, in recent comments, been more positive on the outlook for pricing" going forward.

In the meantime, Stryker runs another business that continues to help out. As Andrew noted, the company boasts a medical/surgical division that has been growing by around 20% for seven quarters in a row.

"We had initially expected to see these businesses return to more normalized, low-double-digit growth rates as the company lapped the more difficult comparisons," Andrew admitted. "However, this has not been the case. And we now expect that the momentum in this business is sufficient enough to generate 15% revenue growth" in the latest period.

Still, Andrew expressed some concern about Stryker's current growth target. Even before Thursday, Stryker had pledged to keep growing earnings by 20% despite the tough pricing environment. But Andrew has questioned whether the company will really keep that promise in the end.

"While we believe that Stryker is willing to pull every lever at its disposal in order to achieve the hallmark 20% EPS growth target next year, we also believe it is possible that management will take advantage of its ever-growing war chest and make a sizable acquisition," Andrew wrote last week. "This deal could allow management to temporarily stray from that EPS goal."

In the meantime, JP Morgan analyst Michael Weinstein was simply looking for a repeat of Stryker's mixed third-quarter results, when the company's core reconstructive business failed to keep pace with its smaller divisions like medical/surgical, trauma and spine.

Weinstein expected the company to report flat hip sales and below-market knee growth for the period. At the same time, however, he said that the company's other businesses "should continue to shine."

To be safe, Weinstein predicted that Stryker's medical/surgical division would see its "torrid" growth rate slow from 20% to 15% in the fourth quarter and 13% for the current year. But he also said his estimates could prove conservative in the end. Meanwhile, he projected that Stryker's trauma and spine divisions -- which now account for 15% of the company's total sales -- would post solid double-digit growth for the period.

Weinstein also assumed that Stryker would reiterate its promise to grow earnings by 20% this year. He said that the company seems comfortable with that familiar guidance despite a ramp-up in spending for late-stage development products like its new artificial discs.

As for the top line -- a central focus for industry investors -- Weinstein himself expects Stryker to grow total sales by 11% to $5.41 billion this year. He believes that Stryker will increase orthopedic sales by 10%, while relying on its medical/surgical unit to keep growing at a faster clip.

All in all, he sees plenty to like about the company.

"The company is valued at a several-point premium to peers

Zimmer

(ZMH)

and

Biomet

( BMET)," Weinstein conceded last week. But "we view this premium valuation as justified on the strength of Stryker's pipeline as well as its strong performance in markets outside of reconstructive implants.

JP Morgan, which helped with a public offering of Stryker securities over the past 12 months, currently has an overweight recommendation on the company's shares.