Stryker stock tumbled Friday after third-quarter sales of its hip and knee replacements came up short, stoking renewed worries weight-loss drugs are pressuring medtech companies.
Stryker sells hip and knee replacements — a common need for people with osteoarthritis. Arthritis can be related to being overweight or having obesity. Investors worry a new class of drugs, called GLP-1 agonists, could reduce obesity rates and thus cut down on the need for hip and knee replacements.
But this is an overly simplistic view, Evercore ISI analyst Vijay Kumar said in a report.
"Management does not see risks from GLP-1 as arthritis is a complex disease (makes sense, all chronic disease by definition have multifactorial risk factors)," he said. "The Street seems to be oversimplifying total addressable market shrinkage to one risk factor (obesity)."
Still, Stryker stock fell 0.7% to 276.22 on today's stock market. Shares are consolidating with a buy point at 306.93, according to MarketSmith.com.
Stryker Stock Faces Off With Weight-Loss Drugs
During the September quarter, Stryker earned an adjusted $2.46 per share, topping forecasts by 3 cents a share and growing 16% year over year. Sales advanced 9.6% to $4.91 billion. Analysts called for a lower $4.87 billion in sales.
Organically, Stryker reported 9.2% sales growth, easily above analysts' prediction for 8.4%, according to FactSet. It's important to note, though, that's Stryker's lowest organic growth rate since June 2022.
Evercore's Kumar noted sales came in above expectations despite worsening exchange rates. But hip and knee replacements came in light. In the U.S., sales of knee replacements climbed 6.9%, excluding the impact of exchange rates, to $515 million. But that lagged forecasts for $525.8 million. Hip replacement sales advanced 4.4% to $362 million, below calls for $375 million.
But knee replacements only represent about 10% of Stryker's sales, Kumar said.
Stryker is "optimistic about the impact from GLP-1s on business in the short-term and long-term," he said. "Short-term: will make ineligible people eligible for surgery sooner. Long-term: should lead to more surgeries as people increase activity levels" after losing weight.
He kept his outperform rating on Stryker stock and raised his price target to 300 from 295.
Guidance Proves To Be A Silver Lining
The strongest growth came from Stryker's medical-surgical and neurotechnology sales, which jumped 10.1% organically to $2.86 billion. Orthopedics and spine sales advanced 8% to $2.05 billion, narrowly above expectations for $2.04 billion.
Guidance was a bright spot.
Stryker now expects annual adjusted income to come in at $10.35 to $10.45 per share. That's up a dime at the low end from the medical technology company's outlook just three months ago. The company also calls for sales to grow 10% to 10.5% organically, up from its prior forecast for 9.5% to 10.5% growth.
Stryker stock analysts forecast earnings of $10.37 a share and $20.27 billion in sales for the year.
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