Why investors need to be cautious on Stryker Corporation (NYSE: SYK) stock

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Stryker Corporation (NYSE: SYK) stock rose over 4.5% in the last one month (as of May 11th, 2020; Source: Google finance) even though the company posted average the first quarter of FY 20.

The company said the deferral of medical procedures because of the Covid-19 pandemic had a negative impact on the results. The company reported 20% increase in the net income to $493 million for the first quarter, from a year ago. Due to the COVID-19 pandemic, the company has not provided second quarter or full-year organic sales growth or earnings guidance for 2020.

SYK in the first quarter of FY 20 has reported the adjusted earnings per share of $1.84 while reported the adjusted revenue growth of 2 percent to $3.6 billion in the first quarter of FY 20. Organic net sales grew 2.4% in the first quarter including 2.8% from rise in unit volume partially offset by 0.4% from lower prices. Orthopaedics net sales fell 2.1% to $1.2 in the quarter and 1.2% in constant currency. Organic net sales of the segment declined by 1.2% in the quarter including 1.5% due to lower prices partially offset by 0.3% from increased unit volume. However, MedSurg net sales increased 6.2% to $1.6 billion in the first quarter and 7.0% in constant currency. Organic net sales of the segment rose 6.3% in the quarter including 6.0% from rise in unit volume and 0.3% from higher prices. Neurotechnology and Spine net sales rose 0.7% to $0.7 billion in the first quarter and 1.5% in constant currency. Organic net sales of the segment rose 0.3% in the quarter from increased unit volume.

Meanwhile, overall the sales drop became more pronounced towards the end of March, and in the last week of the month, in which the company posted sales decline of 30% versus the prior year. The biggest declines were in hips, knees, spine and endoscopy, which was offset by the other businesses. By geography, Japan, Canada, and smaller countries in Europe and emerging markets performed well, while China was the weakest. The company has delivered the adjusted gross profit margin and adjusted operating income margin of 65.3% and 24.0%, which represents the contraction of 110 basis points in the quarter.

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