Read This If You Think Conmed Stock Is Your Best Medical Technology Bet

SYK: Stryker logo
SYK
Stryker

We think that Stryker Corporation (NYSE:SYK) currently is a better bet compared to Conmed Corp (NYSE:CNMD). CNMD stock trades at 4x trailing revenues, lower than that of SYK, whose P/S multiple stands at 6.1x. Does this gap in the companies’ valuations make sense? We believe so and we only expect this gap to widen. While both companies weren’t significantly hampered by the pandemic, Stryker has seen faster sales growth over the past five fiscal years than Conmed. While both Conmed and Stryker are medical technology companies, Stryker has seen its revenues grow from $11.3 billion in FY ’16 to $16.7 billion on an LTM basis. At the same time, Conmed has seen its sales rise from $0.8 billion in FY ’16 to $1 billion on an LTM basis, a rate slower than that of Stryker’s sales growth. For details about Stryker’s revenues and comparison to peers, see Stryker (SYK) Revenue Comparison.

Having said that, we dive deeper into the comparison, which makes Stryker a better bet than Conmed, especially at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at detailed historical revenue growth as well as operating income growth and financial position, combined with expected returns. Our dashboard Conmed vs Stryker: Industry Competitors, But Stryker Is A Better Bet has more details on this. Parts of the analysis are summarized below.

1. Stryker Ahead On Revenue Growth

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Stryker has witnessed much faster revenue growth over the years compared to Conmed. Stryker’s sales have jumped from $11.3 billion in FY ’16 to $16.7 billion on an LTM basis, while Conmed saw slower growth over this period, with sales rising from $800 million in FY ’16 to $1 billion currently.

Additionally, Stryker’s pre-Covid annual sales growth stands at almost 10%, higher than Conmed’s 7.8%, while growth during Covid also stands higher at -3.6%, compared to Conmed’s -9.7%.

Additionally, a look at recent trends reveals that Stryker witnessed 11.3% YoY sales growth for its most recent quarter (Q3 ’21), compared to Conmed’s 4.6%.

Finally, the last three FY sales growth for Stryker stands at 5%, much more than Conmed’s 3.1%.

2. EBIT margins And Financial Position: Mixed Bag

Styker’s P/EBIT ratio stands at around 40.2x currently, marginally lower than that of Conmed’s 41.7x. However, Stryker’s LTM EBIT margins currently stand at 15.1%, higher than Conmed’s 9.7%, but Conmed is ahead in terms of LTM margin change compared to the last three fiscal years, with 2.6% growth vs Stryker’s -2.4%.

Stryker’s debt as a % of equity stands at 12.7% currently, lower than Conmed’s 17.7%. Additionally, Stryker is ahead in terms of cash as a % of assets, too, with 7.7%, higher than Conmed’s 1.8%.

For additional details about Conmed’s historical returns and comparison to peers, see Conmed (CNMD) Stock Return.

3. Finally, Stryker Is Ahead In Terms Of Expected Returns

Using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Stryker is currently the better choice. Stryker’s LTM revenues of $17 billion are expected to rise at a CAGR of around 7.2% as per our estimates, taking revenue numbers three years out to as high as $21 billion. Assuming Stryker’s P/S ratio to drop marginally to 5.7x, this means that the market cap would rise to $117 billion, an upside of more than 15% over three years.

In comparison, given historical trends, we expect Conmed’s sales to rise slower at a CAGR of 5.8%, taking revenue in three years to $1.2 billion. However, considering the P/S for Conmed, too, to pull back to an average level of 3.6x, we estimate the market cap to rise only 6% to $4.2 billion over this period.

The Net of It All

While Stryker’s sales are at a level much higher than Conmed’s, the former has also seen faster revenue growth over the years, and also has higher margins than Conmed. Having said that, our comparison of the post-Covid recovery above, shows that Stryker has shown stronger sales growth than Conmed recently. Due to this, we believe that Stryker deserves its higher P/S multiple, and we expect the gap in these companies’ valuations to only widen. As such, we believe that Stryker stock is currently a better bet compared to Conmed stock.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
SYK Return -3% -3% 117%
CNMD Return -8% -8% 196%
S&P 500 Return -2% -2% 108%
Trefis MS Portfolio Return -8% -8% 261%

[1] Month-to-date and year-to-date as of 1/19/2022
[2] Cumulative total returns since the end of 2016

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