NEW YORK (TheStreet) -- Shares of Smith & Nephew (SNN) surged in London but are down 2.44% to $37.11 in pre-market trading in New York after people familiar with the matter said that Stryker Corp. (SYK) is planning a takeover offer for the U.K. medical device maker that could happen in the coming weeks, Bloomberg reports.
Stryker, a U.S. producer of surgical implants, plans to offer a significant premium to Smith & Nephew's share price, with one of the people saying it could be about 30%. Smith & Nephew gained as much as 9.7% and was up 7.4 % recently. That takes the gain this year to 36% and values the company at about 10.5 billion pounds ($16.3 billion), Bloomberg said.
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Stryker, based in Kalamazoo, MI, is not planning a tax inversion because of the limited tax benefits and political risk, said one of the people, Bloomberg added. The U.S. government is clamping down on those types of deals to stop companies from moving their addresses abroad to cut taxes.
The bid is still being finalized and the timing could change, said the people. There's also a chance that Stryker may decide against an offer, according to Bloomberg.
Stryker shares closed up 1.71% to $96.61 yesterday.
TheStreet Ratings team rates SMITH & NEPHEW PLC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate SMITH & NEPHEW PLC (SNN) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- SNN's revenue growth has slightly outpaced the industry average of 7.2%. Since the same quarter one year prior, revenues rose by 11.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels.
- The gross profit margin for SMITH & NEPHEW PLC is currently very high, coming in at 84.93%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.88% trails the industry average.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: SNN Ratings Report