Stryker's stock has fallen 47%, to $40, from its peak. It could rise to the mid-$50s as health-care spending rebounds. Morningstar pegs fair value at $72.

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What's the outlook for this $40 stock?
Last Friday [Dec. 19], they brought their numbers down for the fourth quarter. They didn't provide any 2009 guidance. They blamed the med-surg piece of the business, which is like Hill-Rom, and didn't say anything about orthopedics. The Street brought numbers down for 2009, but kept or expanded its margin forecast so they could keep estimated earnings looking OK. Our price target is in the low 30s. We base that on rival Zimmer Holdings ' [ZMH] multiple. Our number is $2.95 for '09. If you put a nine-times multiple on that, you get about 30.

“Unusual call buying in the front month (January calls) suggests shares of Stryker [SYK] could go to about $45,” says Najarian. “Currently it’s trading at about half it’s 52-week high.”

21%

Stryker Not Worth Chasing: David Peltier, portfolio manager for TheStreet.com Value Investor newsletter, advises against buying shares of medical device maker Stryker at these levels, despite the firm's top-line growth and the overall aging of America.
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PE of 20, a PEG of 1.10, and it pays a yield of 0.6%.

Three firms that he finds particularly attractive include Beckman Coulter (BEC), Stryker (SYK) and Medtronic (MDT).

Also look at Zimmer (ZMH) and Stryker (SYK) as boomer plays. But they’re not quick trades. These are the kinds of stocks you buy and hold.

The global leader in medical technology, specializing in orthopedics, announced that its board authorized the company to buy back up to $750 million of its common stock. The timing and amount of the repurchases will depend on market conditions. As of December 31, 2007, the company had 411 million share of common stock outstanding.

On January 23rd, the Kalamazoo, Mich.-based company issued spectacular fourth quarter and year end results. In the fourth quarter the company earned $278 million or 66 cents a share, a 21.8% jump from the same period last year. Net sales increased 18.4% to $1.6 billion in the quarter.

For the full year, net earnings increased 30.8% to $1.01 billion and diluted EPS increased 29.1% from $1.89 a share to $2.44 a share. Net sales were $6 billion; representing a 16.6% increase over net sales of $5.14 billion for the year ended 2006.

The shinning star among Stryker's results was their MedSurg Equipment segment, which makes a variety of products including medical and surgical beds. Worldwide sales of MedSurg were $686.6 million for the fourth quarter and $2.42 billion for the year ended December 31, 2007, representing increases of 21.2% and 19.3%, respectively. For the past 16 straight quarters, MedSurg has grown at least 14% a year, and it is expected to achieve mid-teen growth in 2008.

"Our strong fourth quarter financial results capped another excellent year, our seventh consecutive year of double-digit sales growth," commented Stephen P. MacMillan, President and CEO. "Domestic sales were particularly strong, as every key franchise achieved double digit growth in the fourth quarter and international sales were also solid, especially behind the continued expansion of our MedSurg franchises."

Bear Stearns analyst Raj Denhoy believes Stryker's strong fourth quarter results build momentum as the stock enters 2008. With robust orthopedic sales in every area and MedSurg continuing to expand, he expects another year of 20% EPS growth in 2008. Denhoy maintains his outperform rating on the stock and added, "The balance in Stryker's portfolio and consistent financial discipline make it our top pick in large cap orthopedics."