Is Stryker A Better Buy Compared To Intuitive Surgical?

by Trefis Team
Intuitive Surgical
Rate   |   votes   |   Share

Intuitive Surgical’s stock (NASDAQ:ISRG) has rallied 56% since the March 23 lows, while Stryker stock (NYSE:SYK) has gained 41% of its value. The spread of Covid-19 in various parts of the world has had a negative impact on the medical devices industry globally, due to the postponement of elective surgeries. This will likely have an impact on the business of both the companies. That said, while both the companies look poised for strong growth over the coming years, given the backlog of surgeries due to the current pandemic, we believe Stryker will likely fare better than Intuitive Surgical in the near term because of its current valuation.

Our conclusion is based on our detailed dashboard analysis, ‘Is Intuitive Surgical Expensive Or Cheap vs. Stryker?‘, wherein we compare trends in key metrics for the two medical devices companies over the years to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

Why Intuitive Surgical Is Overvalued Compared To Stryker?

Though Intuitive Surgical has seen stronger revenue growth over the last 5 years, Stryker’s earnings growth has fared better. Looking at valuation multiples, Intuitive Surgical’s PE based on 2019 earnings has declined from over 49x in 2019 to 48x currently, while Stryker’s multiple has declined from 37x to about 32x. The steeper decline in Stryker’s multiple can partly be attributed to the company’s acquisition of Wright Medical, which was announced in late 2019, and it has now come into scanner of the UK’s Competition and Markets Authority over competition concerns. The acquisition is important for the company, as Wright Medical will allow Stryker to close the gaps in its current small-joint replacement portfolio.

Intuitive Surgical’s multiple still appears high, considering that the company’s revenues and margins are equally at risk with postponement of elective surgeries. Notably, Stryker’s PE is at the mid-point of the range seen over the last 5 years, while Intuitive Surgical’s PE is slightly above its mid-point, and in-line with the levels seen over recent years, indicating that the market hasn’t quite priced in the negative impact of weaker revenues and margins on the company’s stock. This leads us to believe that Intuitive Surgical’s stock could be vulnerable. Overall, it’s likely that Stryker stock will outperform Intuitive Surgical in the near term.

But How Long Will Markets Remain Under Pressure?

  • The expected timeline for recovery in global economic conditions, and in Stryker’s stock, hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
  • Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of Stryker’s multinational peers, including Boston Scientific and Illumina. The complete set of coronavirus impact and timing analyses is available here.
  • We believe there will be a recovery in demand for most sectors by Q3, with gradual lifting of lockdowns and a gradual rise in number of Covid-19 cases remaining within the manageable capacity of hospitals and care providers.
  • Although most companies will report poor Q2 results starting mid-July, market expectations will be buoyed by a visible improvement in the situation on the ground.

Overall, we believe Stryker stock price at levels of $175 provides a buying opportunity for investors willing to be patient.

While Stryker currently looks like a better investment option compared to Intuitive Surgical for the long run, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!