Analysts at Bank of America have upgraded their rating on medical technologies company Stryker Corporation (NYSE:SYK) to ‘Buy’ on their belief it is likely to be a top-tier performer in 2024.
They also increased their price target on the Kalamazoo, Michigan-based company from US$310 to US$315.
Stryker shares traded higher late morning on Tuesday, up 1.4% at US$288.29.
“SYK’s message on margin upside has turned more bullish but the stock has yet to work given all the negative sentiment on MedTech which we see as an opportunity now ahead of the 2024 upside,” the analysts wrote in a note to clients.
Wall Street analysts expect Stryker to achieve an operating margin of 24.8% in 2024, up 60 basis points, and 25.3% in 2025, up 50 basis points, the analysts noted.
Stryker has indicated it is trying to sprint back to its pre-COVID operating margin of 26.3% and expansion would be “more normal” at roughly 30% to 50%, the BoA analysts pointed out.
“If SYK does 100 basis points of expansion in 2024 (to 25.3%), then there would be $0.20 to $0.25 of earnings per share (EPS) upside or around 2%,” they wrote.
“Better pricing on new products/ortho and better supply chain/spot buying give us confidence in margins.”
They added that they believe Stryker’s new product super-cycle could add 100 to 200 basis points to revenue growth. They noted that Stryker is launching the System 9 power tool, Neptune S waste management system, 1788 Camera, and LIFEPACK 35 defibrillator.
“We think this cycle of launches could add two to three times more dollar growth: two to three times would add 80 to 130 basis points to SYK's growth in the 1st year of launch and 130 to 190 basis points in the 2nd year,” they wrote.
“New robot launches in a few years can sustain new product growth for even longer.”
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