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Stryker on Target

Shares rise 9 cents.

Stryker

(SYK) - Get Stryker Corporation Report

hit its targets.

The orthopedic device maker fell a bit short of top-line estimates for the third quarter -- despite a strong rebound in its orthopedic business -- but still managed to meet profit expectations for the period. The company also expressed ongoing confidence in its full-year guidance and announced 2007 projections that top the current consensus estimate by a penny.

Earnings rocketed 56% to $188 million due, in part, to the absence of year-ago charges. Operating profit soared 24% to hit the consensus estimate of 46 cents a share. Stryker's third-quarter sales jumped 10.4% to $1.29 billion due to solid in growth in its orthopedics and medical-surgical divisions alike.

"We are pleased to report another strong quarter with double-digit sales growth and very strong earnings growth, led by the resurgence of our U.S. orthopedics division," Stryker CEO Stephen MacMillan announced on Tuesday. "This division posted double-digit sales growth for the first time since late 2004 -- including 11% growth in reconstructive products -- and recorded its fourth straight quarter of sequentially improved sales growth. Our MedSurg businesses also continued to generate solid results."

Investors, worried about lingering challenges in the orthopedics business, exercised some caution ahead of Stryker's latest update. They nudged the company's shares down 46 cents to $49.81 before the market closed on Tuesday, but Stryker rose 9 cents in postclose trading.

Analysts were mixed on what to expect from the company.

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Joanne Wuensch of BMO Capital Markets predicted that Stryker would beat top-line estimates and match profit expectations exactly. Wuensch noted that the company itself has been expressing comfort with its guidance, which calls for accelerating sales growth in the second half of the year. She figured that new product launches, coupled with easy year-over-year comparisons, would help push the company toward its goals.

Wuensch pointed to new product offerings -- particularly a hip resurfacing system -- as well as orthopedic pricing and ongoing government investigations as key items of interest for investors this quarter.

Wuensch has a market perform rating and a $52 price target on Stryker's stock. Her firm has provided non-investment banking services to the company over the past year.

Meanwhile, Leerink Swann analyst Jason Wittes seemed more cautious ahead of Stryker's third-quarter report. Unlike Wuensch, Wittes sensed a possible top-line miss on the way.

"The company remains bullish regarding underlying growth rates in orthopedic procedures as well as sales of orthopedic and related products," Wittes conceded in a research note on Tuesday. But "we expect continued pressure from price and mix -- and, thus, expect the top line to be light."

Wittes predicted slow growth for Stryker's hip franchise in particular, with the company's knee business growing no faster than the market itself. He predicted that the company's medical-surgical unit would, once again, stand out as the biggest growth engine instead.

Still, ultimately, Wittes figured that the company would continue to hit its profit targets -- for now.

"We see little risk to 2006 in bottom-line growth for Stryker, but we think it will be a challenge to maintain the same rate in 2007," Wittes wrote just ahead of Stryker's earnings report. "The company has the least financial risk of the orthopedic group, in our view, given its diversity and focus on financial management. (However), due to an increasingly difficult pricing and mix environment, we anticipate further multiple compression -- particularly as the valuation gap has widened between its peers."

Wittes has a market perform rating and a $44 price target on Stryker's stock. His firm has provided non-investment banking services to the company over the past year.