Stryker's Balanced Capital Allocation Strategy Provides Healthy Returns

| About: Stryker Corporation (SYK)

In 1941, Dr. Homer Stryker, an orthopaedic surgeon from Kalamazoo, Michigan, founded the firm that bears his name. Stryker (NYSE:SYK) is one of the world's leading medical technology companies, providing reconstructive, medical and surgical, and neurotechnology and spine products. The Stryker family still owns a substantial portion of the company. To meet patients' needs to lead healthier and more active lives, Stryker has delivered a steady flow of new products and services over the decades. By expanding its market share, Stryker has enjoyed consistent sales and earnings growth.

Today, Stryker is a global leader in the medical technology industry with sales topping $8 billion. Stryker reported third quarter sales rose 1% to $2.1 billion with net earnings up 8% to $353 million and EPS up 9.5% to $.92 on lower shares outstanding. Free cash flow increased a strong 40% year-to-date to $900 million. These results reflected solid performance for most of the company's U.S. franchises, although weakness was noted in Europe.

Given the firm's strong cash flows, management maintains a balanced capital allocation strategy focused on acquisitions, dividends and share buybacks. Stryker recently completed its $100 million acquisition of Surpass Medical, which will expand Stryker's global product portfolio in the fast growing and innovative neurovascular market by offering differentiated products focused on complete stroke care.

Stryker recently increased their dividend 25% to an annualized rate of $1.06 per share, which is consistent with management's goal to increase the dividend at rates above earnings growth. The dividend has compounded at a 35% annual rate over the last five years.

Through the first nine months of 2012, Stryker has repurchased 2.1 million shares for $108 million at an average price of $51.43 per share. Stryker recently announced that its Board of Directors has authorized the company to repurchase an additional $405 million of its common stock, which raises the total share repurchase authorization to $1 billion.

"Given the considerable strength of our balance sheet and strong cash flow generation, we are well positioned to pursue a capital allocation strategy that includes highly focused M&A, an increasingly robust dividend and share buybacks," said Kevin A. Lobo, President and Chief Executive Officer of Stryker. "We are committed to a strategy that will help drive our sales and earnings growth while simultaneously returning capital to shareholders at meaningful and consistent levels."

The company's financial forecast for 2012 includes a constant currency sales increase of 4% to 5.5% with similar sales growth expected in 2013. Foreign exchange could negatively impact 2012 sales growth by .5% to 1.5%. Management expects EPS to be in a range of $4.04-$4.07 in 2012, adjusted for certain acquisition and restructuring items. For 2013, adjusted EPS are expected in the range of $4.25 to $4.40.

Stryker is a HI-quality company with consistent sales and earnings growth, strong cash flows and a balanced capital allocation strategy which should provide healthy returns to the patient, long-term investor.

Disclosure: I am long SYK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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