Shares of Stryker Corp (SYK) hit a 52-week high of $91.55 on Nov 24, 2014, after rumors of a possible acquisition bid for London-based Smith & Nephew resurfaced. The closing price of Stryker was $91.40, representing a strong year-to-date return of about 21.6% as compared with almost 12% return from the S&P 500.
Stryker delivered a positive average earnings surprise of 0.9% in the last quarter. This Zacks Rank #3 (Hold) stock has a market cap of $34.09 billion and a long-term expected earnings growth rate of 8.6%.
Stryker to Bid for Smith & Nephew?
Reportedly, Stryker is probably contemplating an acquisition bid for medical device manufacturer Smith & Nephew. In May 2014, Stryker was banned from bidding for Smith & Nephew under the U.K. laws for six months. The ban ends on Nov 28.
Per Bloomberg, the deal will be structured as tax-inversion, which will enable Stryker to change its legal address to lower-taxed U.K. Apart from the tax-advantage, the deal also presents significant top- and bottom-line synergies for Stryker in the near term.
Over the years, acquisitions have played a key role in driving Stryker’s overall growth. In Dec 2013, Stryker completed its acquisition of MAKO Surgical to gain hold of the latter’s advanced robotic arm technology known as Robotic Arm Interactive Orthopedic System (RIO). The acquisition helped Stryker with a competitive edge in the hip-and-knee replacement market.
In March 2014, Stryker completed the acquisitions of Patient Safety Technologies and Pivot Medical. Pivot’s offerings complement Stryker's existing Sports Medicine portfolio and will provide Stryker's customers with more comprehensive solutions to address certain challenges faced during current Sports Medicine procedures.
In April, Stryker closed the Berchtold acquisition, which is expected to boost Stryker’s fast growing endoscopy division and operating room equipment product portfolio by adding complementary solutions.
In such a scenario, we believe that a possible takeover of Smith & Nephew will further expand Stryker’s product pipeline. This will also help improve Stryker’s competitive position against the likes of Johnson & Johnson (JNJ) and the merged entities of Medtronic, Inc. (MDT) and Covidien plc (COV).
However, the deal is expected to face significant antitrust regulation in both the United States and Europe, which in our view, will be a major headwind.
Estimate Revisions
The Zacks Consensus Estimate for fourth quarter earnings remained constant at $1.46 over the last 30 days. For fiscal 2014 and 2015, the estimates remained steady at $4.75 (12.4% year-over-year growth) and $5.20 (9.4%), respectively, over the same time frame.
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