Published on January 20th, 2022 📆 | 4021 Views ⚑
0Read This If You Think Conmed Stock Is Your Best Medical Technology Bet
We think that Stryker Corporation currently is a better bet compared to Conmed Corp. 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 companiesâ valuations make sense? We believe so and we only expect this gap to widen. While both companies werenât 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 â16 to $16.7 billion on an LTM basis. At the same time, Conmed has seen its sales rise from $0.8 billion in FY â16 to $1 billion on an LTM basis, a rate slower than that of Strykerâs sales growth. For details about Strykerâs revenues and comparison to peers, see Stryker Revenue Comparison.
Having said that, we dive deeper into the comparison, which makes Stryker a better bet than Conmed, especially at these valuations. Letâs 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
Stryker has witnessed much faster revenue growth over the years compared to Conmed. Strykerâs sales have jumped from $11.3 billion in FY â16 to $16.7 billion on an LTM basis, while Conmed saw slower growth over this period, with sales rising from $800 million in FY â16 to $1 billion currently.
Additionally, Strykerâs pre-Covid annual sales growth stands at almost 10%, higher than Conmedâs 7.8%, while growth during Covid also stands higher at -3.6%, compared to Conmedâs -9.7%.
Additionally, a look at recent trends reveals that Stryker witnessed 11.3% YoY sales growth for its most recent quarter (Q3 â21), compared to Conmedâs 4.6%.
Finally, the last three FY sales growth for Stryker stands at 5%, much more than Conmedâs 3.1%.
2. EBIT margins And Financial Position: Mixed Bag
Stykerâs P/EBIT ratio stands at around 40.2x currently, marginally lower than that of Conmedâs 41.7x. However, Strykerâs LTM EBIT margins currently stand at 15.1%, higher than Conmedâs 9.7%, but Conmed is ahead in terms of LTM margin change compared to the last three fiscal years, with 2.6% growth vs Strykerâs -2.4%.
Strykerâs debt as a % of equity stands at 12.7% currently, lower than Conmedâs 17.7%. Additionally, Stryker is ahead in terms of cash as a % of assets, too, with 7.7%, higher than Conmedâs 1.8%.
For additional details about Conmedâs historical returns and comparison to peers, see Conmed 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. Strykerâs 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 Strykerâs 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 Conmedâs 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 Strykerâs sales are at a level much higher than Conmedâs, 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 companiesâ valuations to only widen. As such, we believe that Stryker stock is currently a better bet compared to Conmed stock.
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