Stryker is in a demographic sweet spot, Paul Harris said

Surgeries have been put on hold while the pandemic continues and while the resumption of elective procedures will give a short-term boost to companies like Stryker Corp (Stryker Stock Quote, Charts, News, Analysts, Financials NYSE:SYK), there are even larger demographic movements favouring the medical tech industry and Stryker in particular. So says portfolio manager Paul Harris who had SYK as one of his top picks over the past year.

“I think medical devices is a very important place to be, and Stryker is a very interesting company,” said Harris, partner at Harris Douglas Asset Management, who spoke about Stryker on BNN Bloomberg on Tuesday. “They do spine, knees and hips and they bought a company called Wright Medical, which does hands and ankles.”

“I think that people forget that one of the important parts of this thing is that it really relieves a lot of pain for people with all of these surgeries,” he said.

US-based medical tech company Stryker, which makes implants for joint replacement along with surgical equipment, endoscopic systems, neuro-technology and a range of robotics and medical devices, saw its business get hit by the pandemic last year as elective surgeries were put on hold due to the strains caused by COVID. 

Stryker’s share price ended up positive for 2020 with a return of 17 per cent but revenue was down 3.6 per cent for the year to $14.4 billion while adjusted EPS fell a full ten per cent to $4.20 per share. (All figures in US dollars.)

But the news has been brighter this year with the return of surgeries, as shown by the company’s most recent quarter, its Q2 delivered in late July. There, Stryker managed $4.3 billion in sales, up an outsized 55.4 per cent from 2020’s second quarter but also up 17.6 per cent from the pre-pandemic Q2 of 2019. Earnings were also up to $2.25 per share compared to $0.64 a year ago.

And while the company continued to refrain from providing quarterly guidance, citing uncertainties related to the impact of the pandemic, Styker raised its outlook for the full 2021, calling for organic net sales growth to be between nine and ten per cent compared to 2019 numbers and EPS coming in the range of $9.25 to $9.40 per share.

“We delivered strong financial results in the second quarter,” said Kevin Lobo, Chair and CEO, in a press release. “Business momentum continues to build as the pandemic moderates and the integration of Wright Medical is pacing ahead of plan. Our positive outlook is reflected in our raised guidance.”

And even though Styker is already up about nine per cent for the year, Harris thinks investors will do well betting on the company and on the medical device space in general, which has a number of pluses to it.

“There is a demographic play as people have gotten older they need more and more of these kind of surgeries, and surgeons who use these products don’t switch between products constantly. Thirdly, I think since a lot of these surgeries are not considered core surgeries what happens with a pandemic is a lot of hospitals didn’t allow these surgeries to happen and [now] they’re coming back and people are doing more of these surgeries now with a huge backlog,” Harris said.

“So I think that you will see some better revenue growth on those things. [Stryker] has a great suite of products. They’re mostly in the United States but I think there’s a good opportunity globally for them over the next several years,” he said. “I think it’s a great story.”

Stryker made the landmark acquisition of Wright Medical last November in a deal valued at $5.4 billion including convertible notes. Wright had sales closing in on $1 billion annually and was seen as a good complement to Stryker’s already existing offerings. 

“This acquisition enhances our global market position in trauma and extremities, providing significant opportunities to advance innovation, improve outcomes and reach more patients,” said Lobo in a press release. “Wright Medical has built a successful business, and we look forward to welcoming their team to Stryker.”

In September, Stryker bought an AI-based Gauss Surgical which has a platform for measuring blood loss during surgery, leading to earlier recognition of hemorrhage.

“Gauss Surgical’s innovative Triton technology will help fill the void of quantifying blood loss to enable accuracy, early detection of hemorrhage and prevention of maternal morbidity,” said Dylan Crotty, president of Stryker’s Instruments division, in a September 7 press release. 

“Our belief is that Triton technology will help improve the industry standards for quantifying blood loss in the labor and delivery department, furthering Stryker’s commitment to improve safety and outcomes for our caregivers and their patients,” Crotty said.