Stryker

IThe business

Think of the operating room and list what is in it. The saw, the screws, the camera, the monitor, the bed, the defibrillator on the wall, the stretcher outside. Stryker makes a great deal of that list. Dr. Homer Stryker, an orthopaedic surgeon and inventor, started the business in 1941, and it is still run from Portage, Michigan. ⁹ It sells in about 61 countries, mostly through its own staff, and it had about 56,000 employees at the end of 2025. ⁹ It says it touches more than 150 million patients a year. ³

It is not one product. It is a set of businesses that sell to the same buyers in each hospital.

Revenue was $26.3B over the twelve months to September C (calculated). Three quarters of it came from the United States. ²⁹³ Since the start of 2026 the company has reported in two segments: MedSurg and Neurotechnology, 55% of the nine-month total, and Orthopaedics, 45% C (calculated). ² Before a reorganization in the first quarter the split was 62 and 38 for 2025, because the orthopaedic instruments business sat in MedSurg. ⁹⁷

The robot and the implants

The part most people watch is Mako. It is a robotic arm that helps a surgeon cut bone to a plan for a knee, hip or shoulder replacement. At the end of 2025 more than two million robotic procedures had been done with it, over a million of them total knees, in more than 45 countries. ⁹ A fourth generation, Mako 4, launched in 2025 with a revision-hip application, and a shoulder application was due for full US launch in the first quarter of 2026. ⁹

The model is the one a printer maker uses. A hospital buys or leases the robot once, and Stryker’s implants and instruments go through it for years. I think of the robot as a way to hold a surgeon’s loyalty, and I can’t measure that from the filings, because the company does not publish how many Mako systems are installed or how often they are used. E (estimate) ⁹³ What I can see is the line that holds the robot. Ortho Tech sales rose 15.8% in the third quarter, 18.1% in the United States, and the part that holds Mako and the enabling technologies, ’Other Orthopaedics’, rose 38% to $219M C (calculated). ²

The implants themselves are not growing like the robot. Knee sales rose 1.1% and hip sales fell 1.0% in the quarter. Together, $1,088M, up 0.3% C (calculated). ² Trauma and Extremities, the largest line, rose 5.3%. ² That gap is what the market is arguing about, and I come back to it in the valuation.

The rest of the hospital

MedSurg and Neurotechnology is where growth has been. Endoscopy rose 13.9% in the quarter, Medical 9.7% and Vascular 8.0%. ² Medical includes the LIFEPAK 35 defibrillator, whose global launch continued in 2025, and Vocera communication badges. ⁹ Vascular is stroke devices plus Inari, which makes catheters that pull blood clots out of veins and was bought in February 2025. ⁹

Segment profit is about even. Segment operating income was 26.4% of sales for MedSurg and 31.8% for Orthopaedics over the nine months, before corporate costs and amortization C (calculated). ³ Management says it expects mix to push gross margin down over time because MedSurg grows faster and earns a lower gross margin. ³

A business built by buying

Over the last ten years Stryker spent $22.5B on acquisitions C (calculated). ¹⁵ In the same ten years it generated $30.4B of operating cash C (calculated), so acquisitions took 74% of it, dividends took another 30% ($9.2B), and capital spending took 20% C (calculated). ¹⁵ The gap was filled with debt. Long-term debt was $6.7B at the end of 2016 and total debt was $14.9B at 30 September 2026. ¹⁵³ The company says its priorities, in order, are acquisitions, dividends and then repurchases. ³

The big ones are worth knowing. Sage and Physio-Control came in 2016 for $4.3B in total. ¹⁴ Wright Medical, whose legacy hip products are still being settled in recall charges, cost $4.1B in 2020, or $5.6B counting convertible notes. ¹²³ Inari cost $4.8B in 2025. ⁹ Spinal Implants went the other way. It was sold to Viscogliosi Brothers in 2025 after a $362M write-down. ⁹ I read this as a company that is good at buying things and uneven at keeping them, and I follow that thread through the management and valuation sections.

IIThe moat

The patents are not the main thing. Stryker owned about 5,600 US patents and 9,000 abroad at the end of 2025, and it says protection matters to the extent that a product has a unique design. ⁹ A knee implant can be copied. A hospital relationship is harder to copy.

A surgeon who trains on a system, a nurse who knows the tray and a buyer who has one contract for many product lines are slow to change.

Four things hold customers in place. First, surgeon habit. A surgeon who has done a thousand robotic knees with one system and one implant family has little reason to start again. Second, the installed robots. The 10-K counts more than two million robotic procedures so far. ⁹ Third, breadth. Stryker is one of five global competitors in Instruments, one of seven in Endoscopy, one of five in Medical and in Vascular, and one of four in joint replacement and trauma. ⁹ A hospital can buy beds, cameras, defibrillators and implants in one negotiation. I can’t see the contract terms, so I treat this as likely and unproven. E (estimate) Fourth, scale: $1.68B of research and development in the twelve months, which is 6.4% of sales C (calculated). ²⁹

What the numbers say

A durable edge shows up as steady margins and high returns. Here it shows up in the first and partly in the second.

Gross margin has stayed between 62.8% and 66.3% through a pandemic, five large deals and a tariff round. ¹⁵² That is the sign of pricing power in a business that sells to cost-conscious hospitals, though not of the strong kind. A business with the pull of a toll booth earns margins that move up. Stryker’s moved sideways while it added lower-margin lines.

The return figures need care. On the capital a buyer of the whole company would have to put in, including the $24.9B of goodwill and intangibles, the return is about 15% E (estimate). ²³ That is well above my 8.5% required return. It is not the 50%-plus a business earns when its capital is mostly plants and inventory. The return on the operating assets alone is 52%, and the gap between the two numbers is what Stryker paid for other people’s growth. In a serial acquirer, the edge and the acquisitions are tangled together, and I cannot cleanly separate them.

Where the edge is thinner

It is thinnest where Stryker has one of five or six names in a category and the customer buys on price. Instruments, the Medical line and parts of Endoscopy sit there. The 2026 guide assumes only a modestly positive effect from price. ² The 10-K names the risk in plain words: hospitals are consolidating into larger buyers with more bargaining power, payers are pressing on cost, and China buys devices by volume at lower prices. ⁹

It is also thin in the newest area. In Vascular, Stryker paid $4.8B for Inari in 2025, and in the third quarter of 2026 it wrote $293M off the goodwill of the Peripheral Vascular unit, citing near-term operational and supply constraints and a longer period to reach the expected growth. ³ I read that as a sign that a durable edge is hard to buy at more than 7 times a year’s sales C (calculated). Inari made up about 2.3% of 2025 sales, over eleven months of ownership, and about 10% of total assets. ⁹ The write-down equals 6% of the Inari price, though the unit it hits is larger than Inari alone. C (calculated)

IIIThe competitive advantage

The 10-K names the rivals plainly. In joint replacement, trauma and robotics there are four: Stryker, Zimmer Biomet, Johnson & Johnson MedTech and Smith & Nephew. ⁹ In Instruments the others are Zimmer Biomet, Medtronic, J&J MedTech and ConMed. In Endoscopy there are six others, including Karl Storz, Olympus, Smith & Nephew and Arthrex. In Vascular and Neuro Cranial they are Medtronic, J&J MedTech, Terumo and Penumbra. ⁹ Each of these is a large company. That is why share moves are slow and why the company’s growth rate matters more than a win in any one category.

What happened this year

The year has a shape that explains the share price. On 11 March 2026 Stryker found a cybersecurity incident that disrupted its corporate network and its factories. ⁵ In April it filed a notice that the incident had a material effect on operations. ⁵ Organic sales growth, which had been 11.0% in the fourth quarter of 2025, fell to 2.4% in the first quarter, and adjusted operating margin fell 180 basis points. ⁸⁵ It recovered to 9.0% in the second quarter and 7.7% in the third. ⁴²

Then the guidance moved. In January the company guided to 8.0% to 9.5% organic growth and adjusted earnings of $14.90 to $15.10 a share. It held that in April, narrowed it in July, and on 29 October cut it to 6.5% to 7.0% and $14.80 to $14.90. ⁸⁷⁶² The nine-month figure is 6.4%, so the new range implies fourth-quarter growth of about 7% to 8.5% C (calculated). ² The chief executive said the quarter fell short of the company’s expectations while the underlying fundamentals remain strong, and that he expects a solid fourth quarter. ² The price fell 6.4% the next day, from $311.75 to $291.86. ¹

What went wrong in the third quarter is clear in the product table. Knees rose 1.1%, hips fell 1.0%, and the Peripheral Vascular unit needed a write-down. ²³ Management’s explanation, as I read the release, is that the quarter was below plan, and it has not said whether the cause is share loss, delayed cases or an order shortfall. I could not find a transcript of the call, so I don’t know what was said about the cause. E (estimate)

The robot race in soft tissue

In October Stryker agreed to invest about $400M in preferred shares of CMR Surgical, which makes the Versius Plus soft-tissue robot, in return for exclusive US distribution of Versius and an option to buy the rest of CMR. The deal is expected to close in the fourth quarter, subject to approval. ³ It is a move into the market where Intuitive Surgical dominates, on which I have a page. ²⁵ Intuitive’s page lists the CMR deal beside the new J&J and Medtronic robots. ²⁵

The comparison with Intuitive Surgical is worth setting out, because the two sell to the same hospital buyer and the same operating-room budget.

Intuitive’s page uses its 30 October close of $432.01. This table uses the 4 November close of $482.10 for both companies. That is 119% above my Intuitive base value, and the return that base earns falls from 7.0% on the page to 6.6% C (calculated). ²⁰²⁵

Intuitive is the better business by almost every operating measure. Its growth is twice as fast, its margin is higher, it has no debt, and its revenue repeats because each surgery uses up instruments. Stryker is the wider and slower business. On price, the position reverses: Intuitive costs more than twice my base value and Stryker costs a tenth more. I come back to that in the valuation.

IVManagement

Kevin Lobo has run Stryker since 2012, and before that he ran its orthopaedics group. He came from Johnson & Johnson. ¹⁶ On 6 October the company said he will step down as chief executive on 31 December and become Executive Chair from 1 January. Spencer Stiles, 50, has spent 27 years at Stryker. He was Group President of Orthopaedics from 2019 and has been President and Chief Operating Officer since January 2026. He becomes chief executive on 1 January. ¹⁷ Lobo keeps his salary and bonus target as Executive Chair, but he gets no new stock awards. ¹⁷ The finance chief, Preston Wells, took over in April 2025. ¹⁶

This is an insider’s handover, and the timing is awkward. The year has had a cyber attack, a guidance cut and a write-down, and the man who made the acquisitions will sit as chair over the man who must make them work. Stiles ran Orthopaedics, where knee and hip growth just stalled, before he became chief operating officer. I can’t judge him from the filings, and the board’s choice to keep Lobo as Executive Chair tells me it wants continuity. E (estimate)

How they are really paid

Follow the incentives through. The performance stock pays 200% of target if adjusted earnings per share grow 12% a year and reported sales growth ranks in the top quarter of 17 medical-device companies, and it pays 50% at 7% and the 33rd percentile. ¹⁶ The 2023 grants paid the full 200% in March. ¹⁶ Two things follow.

• Reported sales count bought revenue. The committee adjusts the peer group’s sales for their big deals, but not Stryker’s own. ¹⁶ A $4.8B acquisition lifts sales growth for the next three years and makes the target easier to hit.
• Adjusted earnings leave out the amortization of purchased intangibles and impairments. The reconciliation adds back $719M of amortization over the last twelve months and a $293M goodwill write-down this quarter. ²³ So a deal that fails costs the managers little on the pay metric: its interest and any earnings shortfall still count, but the amortization and the write-down do not.

None of the measures I read is a return on capital. The company says it wants growth at the high end of medical technology and a capital plan that puts acquisitions first. ³¹⁶ The pay design matches that plan closely. I don’t say it is wrong. I say it rewards growth in sales and per-share earnings, and an owner who cares about the return on the next $5B will want to know that nobody is paid on it.

How much of their own money is in

Lobo directly held 197,661 shares at the end of February, about $67M at the Q4 2026 price, plus 1.0M shares he could acquire within 60 days through options and stock units C (calculated). ¹⁶¹ Executives and directors as a group held 4.6%. ¹⁶ The largest single holder among them is Ronda Stryker, a director, with 15.35M shares or 4.0% at that date. ¹⁶ She has sold steadily: 520,000 shares in November, 500,000 in February, 310,000 in May and 350,000 in August, 1.68M in all for about $581M C (calculated). ¹⁸ The prices ran from $311 to $368, and 660,000 of the shares went after the proxy’s date. A seller has many reasons, and four blocks of similar size look planned, though I saw no note that says so.

Among the managers, I read 65 Form 4s covering November 2025 to November 2026. I saw no open-market sales by Lobo, Stiles or Menon, a 165-share sale by Wells, and small ones by Pierce, a group president, and five other officers, from $0.1M to $2.5M. The only purchases were 131 shares, bought between 2019 and 2022 and reported late by one director. ¹⁸ I read the quiet as neutral. Stock is how they are paid, and few of them have a reason to buy more.

What they did with capital over a full cycle

Ten years of choices come out as one picture. Operating cash flow was $30.4B. Acquisitions took $22.5B, dividends $9.2B, capital spending $6.0B and repurchases $0.85B, a total of $38.6B C (calculated). ¹⁵ Most of the extra $8.2B came from debt. ¹⁵³ The dividend was $1.57 a share in 2016 and $3.40 in 2025, and it is $0.88 a quarter now. It costs about $1.3B a year, or 31% of free cash flow after stock pay C (calculated). ⁹¹⁵³ Dividends are the part of the plan I trust most. It is paid out of cash that the existing business earns.

The record on acquisitions is mixed, and I’d like to put numbers on both halves. On the good side, goodwill rose from $6.4B to $19.3B between 2016 and 2025, and over that time revenue more than doubled while the operating margin held. ¹⁵ On the other side, Stryker booked goodwill impairments of $216M in 2022, $456M in 2024 and $293M in 2026, which add up to $965M C (calculated). It also wrote the Spinal Implants business down by $362M before selling it. ¹⁵³⁹ That write-down may overlap with the 2024 figure, so I don’t add it. The $965M is about 4% of the $22.5B spent, which is not alarming. The record is also one-sided: gains from a good deal never appear as a line item, but losses on a bad one do.

Repurchases deserve a note. The company bought nothing for six years, then spent $1.0B in July to September 2026 at an average of $334.46, and the board added $3.0B of authorization in October, bringing the total to $3.03B. ³ The shares cost $335 in August and $322 in September. They were $403.53 at the 2025 high. ¹ The buying came two months before the guide was cut, at prices below today’s. It also took cash from $4.0B to $3.3B in nine months. ²

VFinancials

The ten-year record is steady and large. Revenue grew from $11.3B to $25.1B, or 9.3% a year, and the twelve months to September reached $26.3B C (calculated). ¹⁵² The one down year was 2020, when revenue fell 3.6% as hospitals stopped elective surgery. ¹² Operating income on a GAAP basis went from $2.2B to $5.4B in the twelve months, and free cash flow after stock pay and capital spending from $1.3B to $4.3B, or 12.9% a year C (calculated). ¹⁵²³

What an owner really takes out

Four earnings numbers are in circulation, and they sit far apart. GAAP net income was $3.6B over the twelve months C (calculated). ²⁸³ It carries $719M of amortization from past purchases, the $293M write-down, and $464M of restructuring and other special charges. The company’s adjusted net income was $5.5B C (calculated). ²⁸ Adjusted earnings of $14.28 a share cost the price 23.8 times C (calculated), and the guide of $14.85 at the midpoint, 22.9 times. On GAAP it is 36 times.

My number is about $5.0B. An owner can take out that much a year after interest, stock pay and the charges that come back every year.

Here is how I get there E (estimate). Adjusted operating income was $6.95B, or 26.4% of sales. It is already after stock pay, which is small here, $256M. It leaves out charges that I think of as the cost of running a serial acquirer: integration, restructuring, recalls, legal and device-rule work. These came to $396M in 2023, $380M in 2024, $639M in 2025 and $640M in the last twelve months. ⁸²⁹ I take $500M a year off. That leaves $6.45B, or 24.5% of sales. I tax it at 18%, which is above the 15.8% the company has reported this year, because the low rate depends on moving intellectual property between countries. ²³ The result is $5.29B before interest. That is the right figure for valuing the whole business, debt included, and I use it in the model. Shareholders get what is left after interest. Net interest and other expense was $396M over the twelve months, or $325M after tax, which leaves $4.96B E (estimate). ⁸² At the market value of $130.2B that is a yield of 3.8% C (calculated).

Free cash flow after stock pay and capital spending was $4.3B C (calculated), and it is a different thing. It is what actually came out of the business, after interest of about $0.6B a year on $14.9B of debt, after capital spending that ran $385M above depreciation, and after inventory growth. ⁵²³ The gap to my $5.0B is about $0.65B C (calculated), and it is mostly growth spending in plants and stock. My $5.0B is the business with growth spending taken out, and my model charges that spending back as the business grows.

The hidden capital

Stand-still capital is not the whole story, because Stryker carries heavy working capital. Inventory was $5.7B at 30 September 2026, up from $5.3B at the end of 2025 and $2.0B in 2016. ²¹⁵ Measured against cost of sales, that is 230 days of stock against 194 in 2016 and 214 in 2025 C (calculated). ¹⁵²⁹ Some of this is implant sets that sit in hospitals, which makes it a cost of the surgeon relationship and cannot be easily cut. A growing business needs a growing stock of sets. From 2016 to 2025 plant, inventory and receivables rose by $7.7B, against $13.8B of added revenue, about 55 cents on the dollar before payables C (calculated). ¹⁵ I charge 45 cents per added dollar of revenue in my base case, after payables, and that is a judgement. E (estimate)

Debt is manageable. Total debt is $14.9B, cash $3.3B, so net debt is $11.7B C (calculated). ²³ That is about 1.6 times adjusted operating income plus depreciation C (calculated). The company has strong investment-grade ratings, in its words, and $250M of commercial paper is outstanding. ³ Two bonds of $0.5B and $0.85B fall due in 2027. ³ I see the debt as a reason that a bad year costs equity holders more, and as a constraint on how many more Inaris it can buy without raising capital. The automatic shelf registration filed after the close on the last trading day I use is routine paperwork that allows it to sell stock or debt, and I read nothing into it. ²¹

VIValuation

What would ruin it

Before any numbers, I ask how this goes badly wrong for an owner. I see three ways, in the order I fear them.

One: the growth Stryker buys stops paying. Two: the knee and hip franchise leaks. Three: the owner pays too much, and the price has already moved a long way in a week.

First, the buying. Stryker put 74% of ten years of operating cash into acquisitions C (calculated). Say it keeps spending about $2.25B a year, which is the ten-year average, and the businesses it buys earn 5% a year on the cost instead of the 8.5% I need. Each dollar is then worth 59 cents. That wastes about $0.9B a year of value, or about $2.40 a share a year C (calculated). The Inari write-down is a small taste of it. This is the risk I find hardest to price, since a bad deal looks fine for three years in the pay metrics. ¹⁵¹⁶³

Second, the implants. Knees and hips were $4.6B in the twelve months, 18% of sales C (calculated). ²⁹ A 10% fall in them, at a 65% gross margin, costs about $300M of profit before tax, or 5% of owner operating income C (calculated). That is survivable. The damage would come from what it tells us: that the Mako robot, which sits in the Ortho Tech line that grew 15.8%, is not pulling implants through. My bear case captures this as slower growth overall, 5.5% fading to 3%, with the margin sliding to 23.5%. It is worth $218 a share.

Third, the price. The shares closed at $291.86 on 30 October, the day after results, and at $339.65 at the Q4 2026 close, a rise of 16.4% in three sessions C (calculated). ¹ The last day alone was 9.4%, and other device makers rose with it: Zimmer Biomet 13.5%, Intuitive Surgical 9.4%, Medtronic 6.1% and Boston Scientific 5.3%, against 1.7% for SPY C (calculated). ²⁰²² Here is what is known. Zimmer Biomet, which competes with Stryker in knees and hips, reported before the open that day and raised its 2026 earnings guide to $8.50 to $8.60 a share from $8.47 to $8.59. ³¹ Its knee sales fell 3.1% in the quarter, against a 1.1% rise at Stryker, so the report does not obviously help Stryker’s own knee line. ³¹² The 10-year Treasury yield eased from 4.95% to 4.90% and SPY rose 1.7%. ²³²² Here is what is not known. I found no company news for Stryker, Intuitive, Medtronic or Boston Scientific that day, so I can’t say why they moved. The shelf registration filed after the close is routine. ²¹ Nothing about the business changed by a sixth in three days. Past 12 months the range was $269.75 to $387.46 C (calculated). ¹

What the price implies

Market value at $339.65 is $130.2B on 383.2M diluted shares C (calculated). Add net debt of $11.7B and the business is priced at $141.8B, or 26.8 times what it earns to stand still after tax and before interest C (calculated). ¹³ To earn my 8.5%, owner cash before interest and after the capital that growth takes, about $4.7B in 2026, needs to grow 7.5% a year for fifteen years and then 3% for ever E (estimate). Revenue growth has been 9.3% a year, and free cash flow after stock pay 12.9% a year, over the last decade. So the price asks for less than the record, and the record includes $22.5B of purchases.

The price asks for slightly more than my base: one more point of growth a year, or two more points of margin, for fifteen years.

The discount rate

I use 8.5%. The capital asset pricing model gives 8.6%: the 10-year Treasury at 4.90%, plus a beta of 0.88 from 119 months of returns against SPY, times Damodaran’s 4.20% implied premium C (calculated). ²³²²²⁴ I round to the nearest half point, as I do on other pages. The 60-month beta of 0.78 gives 8.2% C (calculated). Stryker has debt of about a tenth of its value, and a blend of equity and after-tax debt costs would be near 8.2%. I stay at 8.5% for the unlevered cash flows because of the acquisition record and the leadership change, and I know that is a choice. At 8.2% my base is $331 E (estimate). At 9.0% it is $279.

The price sits inside the table, between the 8.0% and 8.5% rows at 3.0% growth. It takes a discount rate of 8.1% to reach it with my base C (calculated). A reader who accepts 8.0% a year will find the price fair or a little low. At 8.5%, even growth of 3.5% for ever gives $328, a little under the price. One who wants 9.0% will find the price 22% above $279.

What I cannot judge

Four things, and I would rather say so than give a false figure.

• Why the third quarter fell short. The release says it fell below the company’s expectations and says nothing on cause. I could not find a transcript of the call, so I can’t tell if knees and hips lost share, cases were delayed or supply was short. ² A hospital system’s buying cycle can’t be seen from outside.
• How many Mako robots are installed and how often they are used. The 10-K gives cumulative procedures, not systems or utilization. ⁹ My base assumes the robot keeps pulling implants. I can’t test it.
• What the bought businesses earn. The filings give goodwill and the write-downs but not the sales or profit of each deal after the first year. I can see that Inari was 2.3% of 2025 sales, and not what it will be worth. ⁹³ Value from acquisitions in my model is zero by assumption, since I treat each deal as fairly priced.
• What the last day’s rally means. Zimmer Biomet’s report and a small fall in long rates fell on the same day. I can’t tell how much of the move came from them, how much from the group, and how much from news I have not found. If it prices in something that raises long-run cash for the whole group, my base may be too low. I don’t know.

Three cases

I value fifteen years of cash, 2027 to 2041, at 1 January 2027, then a growing perpetuity. Each year starts from revenue, takes an operating margin after stock pay and after the recurring charges, taxes it at 18%, and subtracts capital at a set number of cents per added dollar of revenue. I treat acquisitions as fairly priced, so they add no value in any case: the cash goes out and the revenue comes in at the same worth. Net debt of $11.7B comes off at the end.

Are these fair? Base revenue is $26.8B in 2026, up 6.6% from 2025, then $28.9B in 2027, up 8.0% E (estimate). That is faster than 2026, because 2026 carries the cyber quarter, and below the 10.2% to 11.2% reported growth of 2023 to 2025, which included purchases. ¹¹¹⁰⁹ The base margin of 24.5% rising to 27.0% is a gain of 2.5 points over eight years, against a gain of one point in 2025 alone. The base capital figure of 45 cents is after payables; before them the last decade used 55 cents C (calculated). So the base asks for growth to recover to 8%, the low end of the original guide, for margin to drift up, and for purchases to earn their cost.

What closes the gap

The biggest levers are growth and margin, and each alone reaches the price: a bull margin on base growth gives $341, and a bull growth path on a base margin gives $361 E (estimate). Capital per added dollar barely matters, $5 at most. The price is a bet on sales recovering to the 8% to 9% range and the margin rising, not on a new idea.

How the odds shrink

The bull case needs several things to go right at once. These are my judgments.

That comes to about 2% E (estimate). The four are linked, since strong growth helps margin and capital together, so the true figure is higher. If I raise each to 75%, it is still 32% C (calculated). The base needs less: one more point of growth, or two more points of margin. That is why the price sits closer to the base than the bull.

The next best use of the dollar

The closest business on this site is Intuitive Surgical, which sells to the same hospitals. Intuitive is the better business: it grows twice as fast, its margin is higher, and it has no debt. But my Intuitive base earns 6.6% at its 4 November close, against a 10.0% hurdle, while Stryker’s earns 8.1% against 8.5%. The shortfall to the hurdle is 0.4 points at Stryker and 3.4 points at Intuitive. So the same dollar earns about 1.5 points more a year in Stryker on my numbers. Mastercard, at the price on its own page, earns 0.3 points more than Stryker, with a toll that needs no purchases. The Treasury pays 4.90% with none of the risk, so Stryker’s base pays about 3.2 points a year for taking it.

Quality and price

These are two questions. On quality, the record shows a broad franchise, but not one with a toll booth’s margins: 65% gross margins, a 15% return on all the capital in it, a dividend that has grown and a debt load it can carry. Against Intuitive it grows slower and it needs more capital to grow. On price, this looks like a good business at a price near my base: 10% above it, 16% below my bull, and 56% above my bear. Paying $339.65 earns about 8.1% in my base case, a little under the 8.5% I ask. A reader who values the Q4 2026 close as a fair price for a business with a recovering sales line will not find it unreasonable, and I want to say so plainly.

The margin of safety

I take 25% off base, which gives $232 E (estimate). I use 25% rather than the 30% I use on Intuitive because Stryker’s cash flows come from more lines and are steadier. The pandemic year of 2020 cost it 3.6% of sales. ¹² I do not use less because three of the large inputs here cannot be known: the cause of the third quarter, the return on purchases, and the new chief executive. $232 is 6% above my bear C (calculated), so the bear gives little cushion. The stock last closed near that level in November 2022 C (calculated). ¹ I don’t expect it to return there. If the market is right, it is because the cyber quarter is a one-off and sales and margin recover faster than my base.

VIIThe case for the price

What most people miss

Three things cut in the company’s favour. First, most of the shortfall against the original guide is the first quarter. Organic growth in the cyber quarter was 2.4%, and the last two quarters averaged 8.4%, which is inside the original 8.0% to 9.5% range C (calculated). ⁵⁴² Second, the robot line is growing fast while the implants are not, which is the order in which a razor-and-blade business would show up: Ortho Tech sales rose 15.8% in the third quarter, and the part with Mako and enabling technology rose 38% C (calculated). ² Third, margin improved in a hard quarter. Adjusted operating margin rose 60 basis points to 26.2%, and MedSurg segment margin was 28.7% against 26.1% a year earlier C (calculated). ²³

The bull case

The company’s own case is that the business is fine and the shape of the year is a one-time event. In the third-quarter release the chief executive said the quarter fell short but the underlying fundamentals are strong, and that he expects a solid fourth quarter and good momentum going into 2027. ² Its stated goal is growth at the high end of medical technology. ³ The board added $3.0B to the repurchase program in October. ³ Outside views I can use are thin. I did not find a dated, published case on this company from a named investor or analyst that I could check against a filing, so I cite none and imply none. The only named holder facts I have are the 13G figures in the proxy, which are old: Vanguard at 8.1% and BlackRock at 6.5%, both as of late 2023. ¹⁶

Against reality

Nine-month organic growth is 6.4%, and the new guide is 6.5% to 7.0%. ² My base needs 8.0% in 2027, and my bull needs 9.5%. If Stryker’s growth returns to the 8% to 9% of the last two quarters, if Ortho Tech’s strength turns into implant sales in knees and hips, and if the adjusted margin climbs from 26.4% toward 29%, then $340 is covered with some room, at the 8.5% I require. Today’s readings are 7.7% in the quarter, 0.3% for knees and hips together, and 26.2%. Knees and hips are the weak point of the case.

What a 10x would take. Ten times the price is $3,396, a market value of $1.30T C (calculated). At 30 times owner operating profit after tax, that needs $43.8B a year, and at 40 times, $32.8B, against $5.3B today. At my long-run base margin after tax of 22.1%, that means $148B to $198B of revenue, against $26.3B C (calculated). In ten years that is 19% to 22% a year, about twice the 9.3% of the last decade, and it would have to come without purchases large enough to cost their price. For companies this size the record is thin. NVIDIA went from about $145B at the end of 2019 to 34 times the price in under seven years, on a new category of demand. ²⁹³⁰ Stryker’s own last ten years took the price from $117.15 to $339.65, 2.9 times. ¹ For Stryker, a 10x is not plausible on anything I can see.

Where I come down

The last two quarters of growth and the strength of Ortho Tech moved me, since without them I would value sales lower. The last day’s jump did not, because it was shared with the sector, followed a rival’s report, and I can’t tell what it says. The weak knee and hip line and the unpaid-for-return in purchases kept my base where it is. What would raise my values is two quarters of knee and hip growth near 4% together with an adjusted margin above 27% and no further write-down. That would move my base up, though not to the bull.

VIIIRisks, and what would change my view

In the order I weigh them.

1. Knees and hips. Flat sales in the quarter, while the company’s robot line grew 15.8%. If it is share loss to three named rivals, the robot franchise is worth less than I assume. ²⁹
2. Purchases. The Inari write-down, a $400M stake in CMR with an option on the rest, and pay tied to sales and per-share growth. Another large deal could cost more than it brings. ³¹⁶
3. Another cyber event. The investigation into the March incident is not over, and the company says it may see further harm. ⁵ A second stoppage would hit a business that is only now back to normal growth.
4. Price pressure. Hospital consolidation, payers and China’s volume-based buying press on prices. ⁹ The 2026 guide assumes only a modestly positive price effect. ²
5. Tariffs. A Supreme Court ruling struck down certain tariffs and may mean refunds, but the government invoked other powers to impose new ones. ⁵ The $158M of reversed tariffs boosted the first nine months of 2026 and is excluded from my numbers. ²
6. Debt. $14.9B of debt, with $1.3B due in 2027 and about $2.6B in 2028. Recent issues carry 4.6% to 5.2%, against 2.1% on part of the 2027 debt and 3.4% on part of the 2028 debt. ³
7. Recalls and product liability. The company still records charges for the Rejuvenate and LFIT V40 hips and legacy Wright hips, and it is self-insured for some claims. ³
8. Tax. The adjusted rate of 15.8% depends on how intellectual property is held between countries. Each point of tax is about $64M of owner profit, or about 1.2% of earnings. ²³ C (calculated)
9. Leadership change. A new chief executive on 1 January, with the old one as Executive Chair, and a new chief accounting officer from September. ¹⁷¹⁹
10. Valuation. The shares rose 16.4% in three sessions, with the sector, to a price above my base. They can give it back. ¹²⁰

If knees and hips return to growth near 4% and the margin passes 27%, I would move the base up, perhaps by a tenth. If the next two quarters show knee and hip sales falling, or another write-down, I would move toward the bear. And if the price came to the mid-$200s with the business unchanged, this page would read very differently.