Mar Vista Investment Partners, LLC on Stryker Corporation
Thesis
Mar Vista believes the recent decline in Stryker reflects a reset in near-term growth expectations rather than deterioration in the company's long-term competitive position. Investors became concerned after U.S. orthopedic procedure growth failed to accelerate as expected, with softer hip and knee volumes, normal summer seasonality and some patient deferrals linked to inflation and out-of-pocket medical costs. Company-specific challenges, including weak European hip performance, a competitive product gap, Peripheral Vascular manufacturing issues and disruption from an earlier cyberattack, compounded investor concerns. These setbacks were particularly damaging because the stock entered the period at a premium valuation supported by expectations for sustained high-single-digit organic growth. However, management continued to report healthy hospital capital spending and underlying procedure demand, suggesting the weakness is primarily cyclical and execution-related rather than a structural collapse in medtech demand. Mar Vista expects Stryker to deliver organic revenue growth exceeding 8% in both 2026 and 2027 and believes the current share price undervalues its long-term free cash flow growth potential.
“Despite these temporary headwinds, we expect Stryker to generate 8%+ organic revenue growth for 2026 and 2027 and believe the stock undervalues the company’s likely long-term free cash flow growth.”
Key risks
- Weaker-than-expected U.S. orthopedic procedure growth, including hip and knee volumes, could undermine organic revenue growth expectations.
- Inflation and rising out-of-pocket healthcare costs could prompt further patient deferrals and extend procedure lead times.
- Continued weakness in European hips and the absence of a competitive hip impactor product could pressure market share and performance.
- Peripheral Vascular manufacturing and supply problems, combined with operational disruption from the earlier cyberattack, could delay recovery and create further execution challenges.