Medical Technology Stock Benefits from Rising Acute Care Demand

Key Points

• Stryker provides medical and surgical products to hospitals, ranging from cleaning products to hip and joint replacements.
• Stryker is a beneficiary of the acute care boom that has hit health insurers but caused a spike in healthcare providers and suppliers.
• Stryker reported a Q2 2024 top and bottom line beat and issued in-line full-year 2024 guidance.

Medical and surgical products manufacturer Stryker Co. NYSE: SYK is a beneficiary of the acute care boom occurring in the healthcare industry. Acute care is considered short-term intensive hospital-based emergency services that often occur in the emergency department (ED) or intensive care unit (ICU). These can include trauma care and surgery. Stryker supplies hospitals with medical and surgical equipment ranging from cleaners and disinfectants to hospital beds and emergency resuscitation equipment to hip and joint replacements. When there is an upsurge in hospital-based care and inpatient utilization, Stryker is a beneficiary as a major supplier.

Stryker operates in the medical sector, competing with other suppliers of medical equipment and devices like Cardinal Healthcare Inc. NYSE: CAH, Zimmer Biomet Holdings Inc. NYSE: ZBH and Medtronic plc NYSE: MDT.

The Acute Care Boom is Here to Stay

The sudden jump in acute care can be traced back to October 2023, when insurance giant Humana Co. NYSE: HUM issued an unexpected, shockingly big earnings warning. Most health insurers followed, citing similar occurrences of a jump in inpatient utilization, notably within the Medicare Advantage population. That trend hasn’t slowed down as more companies scrutinize their Medicare Advantage plan participation. Insurer The Cigna Group NYSE: CI opted to completely sell its Medicare Advantage and Medicare Supplemental Benefits, Medicare Part D, and CareAllies businesses to Health Care Services Co. for $3.7 billion. Cigna cited the disproportionate and rising costs associated with Medicare Advantage members. This is a trend that continues to grow with the aging population.

The Aging Population Benefits Stryker

Stryker products can be found in hospitals, ranging from oral hygiene, patient cleansing, and cleaning supplies to orthopedic disposable products, advanced bed frames, emergency patient transport equipment, and resuscitation devices. The company also produces the Mako robotic-arm joint replacement surgery machine. It’s also partnered with the leading robotic-assisted surgery system, da Vinci manufacturer Intuitive Surgical Inc. NASDAQ: ISRG. Stryker’s iSuite integrates with da Vinci systems to provide more optimized, efficient, and effective surgical rooms with its imaging systems and various integrations. It has a dominant market share in the orthopedic joint replacement device segment. Joint replacement surgery occurs in patients between 60 and 80 years old. 

SYK Has a Descending Triangle Pattern

The daily candlestick chart for SYK illustrates a descending triangle pattern. This pattern formed with a falling upper trendline at $351.56 on June 7, 2024, marking the lower highs towards the flat-bottom lower trendline support at $323.75. The lower trendline has held the support four times since its later earnings report, preventing the gap fill from falling back to $317.12. The Q2 2024 earnings beat was not strong enough to break out the descending trendline. The daily relative strength index (RSI) has been chopping around the 46-band. Pullback support levels are at $328.58, $323.75, $317.12, and $307.25.

Stryker Reports a Top and Bottom Line Beat for Q2 2024

For Q2 2024, Stryker’s EPS rose 10.6% YoY to $2.81, beating consensus analyst estimates by 2 cents. The gross profit margin was 63%, and the operating income was 19.4%. Revenues grew 8.5% YoY to $5.42 billion, beating the $5.40 billion consensus estimates. Organic net sales rose 9% YoY. Adjusted operating income margin grew 30 bps to 24.6%

Its MedSurg and Neurotechnology net sales rose 3% YoY to $3.1 billion. Organic net sales rose 9.7%, which included 7.6% from increased unit volume and 2.1% from higher prices. Its Orthopedics and Spine net sales grew 7.9% YoY to $2.3 billion. Organic net sales rose 8%, including an 8.4% increase from unit volume minus 0.4% for lower prices.

Stryker Issues In-Line 2024 Guidance

The company provided in-line full-year 2024 guidance, expecting EPS of $11.90 to $12.10 versus $11.95 consensus estimates. Its positive outlook is based on sustained procedural volumes and healthy demand for its capital products. Organic net sales growth is expected to be between 9% and 10%, with a favorable pricing impact of around 0.5%. However, if foreign exchange rates remain at current levels, the company anticipates a moderately unfavorable impact on full-year net sales. Expected adjusted net earnings per diluted share may be negatively hit by 10 to 15 cents.

Stryker CEO Kevin Lobo commented, "We delivered another quarter of strong organic sales growth. We remain committed to our margin expansion goals and are excited about our product and M&A pipelines."

Stryker analyst ratings and price targets are at MarketBeat. There are 19 analyst ratings on SYK stock, comprised of 15 Buys and four Holds. The stock has a 12.53% upside to the consensus price target of $373.11.