shares showed a full range of motion Friday.
The company's stock jumped 11%, hitting levels unseen since last fall, after Thursday's quarterly report. The Kalamazoo, Mich., orthopedic device maker met fourth-quarter profit targets but fell short of revenue forecasts. Stryker also issued full-year earnings guidance that due to a lower tax rate came in just ahead of current expectations.
The company's comments were mostly reassuring to investors who had been concerned on a
number of fronts. Still, even a bullish analyst who upgraded the stock on Thursday failed to see the rally coming.
"Stryker's shares have pulled back recently," noted Wachovia analyst Michael Matson, when raising his rating on the stock from market-weight to outperform. "And there may be further weakness Friday, which represents a good entry point in our view."
Instead, the stock immediately soared to $49.48 -- putting it very close to Matson's target range of $50 to $54 a share.
Matson upgraded the stock due to the company's planned rollout of a new spine putty, its recent success with a high-end knee replacement and its continued strength in medical/surgical equipment sales. Notably, his upgrade had nothing to do with perhaps the biggest driver of orthopedic stocks -- pricing for artificial joints in the crucial U.S. market.
Nevertheless, his note sent other less-diversified orthopedic players soaring as well.
, which is set to report its own results on Monday, jumped 5.4% to $70.22. And smaller
( BMET) surged 6% to $37.83.
Many experts saw reasons for a fall instead.
"Management said specifically for implants that pricing was down -- from flat last quarter -- as pricing pressure has increased in the U.S.," Leerink Swann analyst Jason Wittes noted on Friday. "In addition, we saw continued evidence of mix pressure. ... (So) we expect the stock to trade down this morning."
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
-- 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.