Has Stryker Run Its Course After A 46% Rally?

by Trefis Team
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Stryker stock (NYSE:SYK) has rallied 46% over recent weeks (vs. about 40% gain in the S&P 500) to its current level of $184 after falling to a low of $126 in late March as a rapid increase in the number Covid-19 cases resulted in heightened fears of an imminent global economic downturn. But the stock remains 18% below the $224 peak it reached in mid-February, and we believe that the stock may have run its course for now, and any significant growth from the current levels is unlikely in the near term. Our conclusion is based on our detailed comparison of Stryker stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

How Did Stryker Stock Fare During The 2008 Downturn And What Does It Mean For The Stock This Time Around?

We see Stryker stock declined from levels of around $59 in October 2007 (the pre-crisis peak) to roughly $29 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 51% of its value from its approximate pre-crisis peak. This marked a drop in-line with the broader S&P, which fell by about 51%. However, Stryker recovered strongly post the 2008 crisis to about $44 in early 2010 – rising by 50% between March 2009 and January 2010, again, in-line with the S&P, which bounced back by about 48% over the same period.

In comparison, Stryker stock lost 44% of its value between the market peak on February 19 to the low on March 23, and has already recovered 46% since then. Keeping in mind the trajectory over 2009-10 where the stock was down 25% from its pre-crisis peak post recovery, this suggests the stock has already recovered more than it did in 2008, and any significant growth from the current levels is unlikely. The current level of $184 marks a partial recovery to the $224 level Stryker stock was at before the coronavirus outbreak gained global momentum.

But What’s Fueling The Current Rally In Stryker Stock?

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which helped reduce investor concerns about the near-term survival of companies. The gradual lifting of lockdowns globally has also helped the demand for some non-essential goods recover. Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to boost market expectations. While Q2 results will be weak, investors will focus their attention on 2021 results – helping Stryker stock to hold the gains it has seen over the recent weeks, but a further rally in Stryker stock will depend on trends in demand for surgeries. 

For now, people have deferred elective surgeries and this will impact most of the medical devices companies. Stryker in Nov 2019 announced its plan to acquire Wright Medical Group in a $4 billion deal, and that has now come under the scanner of UK’s Competition and Markets Authority over competition concerns. It will be interesting to see how this story develops. The Wright Medical deal is a great fit for Stryker, as the company will become the largest player in the global small-joint reconstructive implant space, and it will allow Stryker to close the gaps in its current small-joint replacement portfolio.

While Stryker looks like it has run its course, 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.

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