Intrinsic value of Stryker - SYK

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$136.37

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$136.37

 
Intrinsic value

$173.60

 
Up/down potential

+27%

 
Rating

buy

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SYK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 50.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.86
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.59
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
Revenue, $m
  11,325
  13,171
  15,169
  17,316
  19,608
  22,042
  24,615
  27,324
  30,167
  33,143
  36,251
  39,492
  42,867
  46,378
  50,029
  53,824
  57,767
  61,865
  66,125
  70,552
  75,157
  79,947
  84,933
  90,125
  95,534
  101,172
  107,051
  113,185
  119,588
  126,275
  133,260
Variable operating expenses, $m
 
  10,157
  11,601
  13,153
  14,810
  16,569
  18,429
  20,388
  22,443
  24,594
  26,841
  28,548
  30,987
  33,526
  36,165
  38,908
  41,759
  44,721
  47,800
  51,001
  54,329
  57,792
  61,396
  65,149
  69,059
  73,135
  77,385
  81,819
  86,447
  91,281
  96,331
Fixed operating expenses, $m
 
  356
  365
  374
  383
  393
  402
  412
  423
  433
  444
  455
  467
  478
  490
  503
  515
  528
  541
  555
  569
  583
  597
  612
  628
  643
  659
  676
  693
  710
  728
Total operating expenses, $m
  9,159
  10,513
  11,966
  13,527
  15,193
  16,962
  18,831
  20,800
  22,866
  25,027
  27,285
  29,003
  31,454
  34,004
  36,655
  39,411
  42,274
  45,249
  48,341
  51,556
  54,898
  58,375
  61,993
  65,761
  69,687
  73,778
  78,044
  82,495
  87,140
  91,991
  97,059
Operating income, $m
  2,166
  2,659
  3,204
  3,789
  4,415
  5,080
  5,783
  6,524
  7,302
  8,116
  8,966
  10,489
  11,413
  12,374
  13,374
  14,413
  15,494
  16,616
  17,783
  18,997
  20,259
  21,572
  22,940
  24,363
  25,847
  27,394
  29,007
  30,690
  32,448
  34,284
  36,202
EBITDA, $m
  2,712
  3,570
  4,157
  4,788
  5,461
  6,177
  6,934
  7,732
  8,569
  9,445
  10,361
  11,316
  12,310
  13,345
  14,422
  15,540
  16,703
  17,912
  19,168
  20,474
  21,833
  23,247
  24,718
  26,251
  27,848
  29,512
  31,249
  33,061
  34,952
  36,928
  38,992
Interest expense (income), $m
  180
  234
  295
  361
  431
  507
  587
  672
  761
  855
  953
  1,055
  1,162
  1,273
  1,389
  1,509
  1,634
  1,764
  1,899
  2,039
  2,185
  2,337
  2,495
  2,659
  2,830
  3,008
  3,194
  3,388
  3,590
  3,801
  4,021
Earnings before tax, $m
  1,921
  2,425
  2,909
  3,429
  3,984
  4,573
  5,196
  5,852
  6,540
  7,261
  8,013
  9,434
  10,251
  11,101
  11,985
  12,904
  13,859
  14,852
  15,884
  16,958
  18,074
  19,235
  20,445
  21,704
  23,017
  24,385
  25,813
  27,303
  28,858
  30,483
  32,181
Tax expense, $m
  274
  655
  785
  926
  1,076
  1,235
  1,403
  1,580
  1,766
  1,960
  2,164
  2,547
  2,768
  2,997
  3,236
  3,484
  3,742
  4,010
  4,289
  4,579
  4,880
  5,194
  5,520
  5,860
  6,215
  6,584
  6,969
  7,372
  7,792
  8,230
  8,689
Net income, $m
  1,647
  1,770
  2,123
  2,503
  2,908
  3,338
  3,793
  4,272
  4,775
  5,300
  5,850
  6,886
  7,483
  8,104
  8,749
  9,420
  10,117
  10,842
  11,596
  12,379
  13,194
  14,042
  14,925
  15,844
  16,802
  17,801
  18,843
  19,931
  21,066
  22,252
  23,492

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,384
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  20,435
  19,836
  22,845
  26,078
  29,530
  33,196
  37,071
  41,151
  45,432
  49,914
  54,595
  59,476
  64,558
  69,847
  75,345
  81,060
  86,999
  93,171
  99,585
  106,254
  113,188
  120,403
  127,911
  135,730
  143,876
  152,367
  161,221
  170,459
  180,102
  190,173
  200,693
Adjusted assets (=assets-cash), $m
  17,051
  19,836
  22,845
  26,078
  29,530
  33,196
  37,071
  41,151
  45,432
  49,914
  54,595
  59,476
  64,558
  69,847
  75,345
  81,060
  86,999
  93,171
  99,585
  106,254
  113,188
  120,403
  127,911
  135,730
  143,876
  152,367
  161,221
  170,459
  180,102
  190,173
  200,693
Revenue / Adjusted assets
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
  0.664
Average production assets, $m
  4,035
  4,689
  5,400
  6,164
  6,980
  7,847
  8,763
  9,727
  10,739
  11,799
  12,905
  14,059
  15,261
  16,511
  17,810
  19,161
  20,565
  22,024
  23,540
  25,117
  26,756
  28,461
  30,236
  32,084
  34,010
  36,017
  38,110
  40,294
  42,573
  44,954
  47,441
Working capital, $m
  4,713
  1,804
  2,078
  2,372
  2,686
  3,020
  3,372
  3,743
  4,133
  4,541
  4,966
  5,410
  5,873
  6,354
  6,854
  7,374
  7,914
  8,476
  9,059
  9,666
  10,296
  10,953
  11,636
  12,347
  13,088
  13,861
  14,666
  15,506
  16,384
  17,300
  18,257
Total debt, $m
  6,914
  8,426
  10,307
  12,328
  14,485
  16,777
  19,198
  21,748
  24,424
  27,225
  30,151
  33,201
  36,378
  39,683
  43,120
  46,692
  50,404
  54,261
  58,270
  62,437
  66,772
  71,281
  75,974
  80,860
  85,952
  91,258
  96,792
  102,566
  108,593
  114,887
  121,462
Total liabilities, $m
  10,885
  12,397
  14,278
  16,299
  18,456
  20,748
  23,169
  25,719
  28,395
  31,196
  34,122
  37,172
  40,349
  43,654
  47,091
  50,663
  54,375
  58,232
  62,241
  66,408
  70,743
  75,252
  79,945
  84,831
  89,923
  95,229
  100,763
  106,537
  112,564
  118,858
  125,433
Total equity, $m
  9,550
  7,438
  8,567
  9,779
  11,074
  12,449
  13,902
  15,432
  17,037
  18,718
  20,473
  22,303
  24,209
  26,193
  28,254
  30,398
  32,625
  34,939
  37,344
  39,845
  42,446
  45,151
  47,967
  50,899
  53,954
  57,138
  60,458
  63,922
  67,538
  71,315
  75,260
Total liabilities and equity, $m
  20,435
  19,835
  22,845
  26,078
  29,530
  33,197
  37,071
  41,151
  45,432
  49,914
  54,595
  59,475
  64,558
  69,847
  75,345
  81,061
  87,000
  93,171
  99,585
  106,253
  113,189
  120,403
  127,912
  135,730
  143,877
  152,367
  161,221
  170,459
  180,102
  190,173
  200,693
Debt-to-equity ratio
  0.724
  1.130
  1.200
  1.260
  1.310
  1.350
  1.380
  1.410
  1.430
  1.450
  1.470
  1.490
  1.500
  1.520
  1.530
  1.540
  1.540
  1.550
  1.560
  1.570
  1.570
  1.580
  1.580
  1.590
  1.590
  1.600
  1.600
  1.600
  1.610
  1.610
  1.610
Adjusted equity ratio
  0.362
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375
  0.375

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,647
  1,770
  2,123
  2,503
  2,908
  3,338
  3,793
  4,272
  4,775
  5,300
  5,850
  6,886
  7,483
  8,104
  8,749
  9,420
  10,117
  10,842
  11,596
  12,379
  13,194
  14,042
  14,925
  15,844
  16,802
  17,801
  18,843
  19,931
  21,066
  22,252
  23,492
Depreciation, amort., depletion, $m
  546
  911
  953
  998
  1,046
  1,097
  1,151
  1,208
  1,267
  1,330
  1,395
  827
  898
  971
  1,048
  1,127
  1,210
  1,296
  1,385
  1,477
  1,574
  1,674
  1,779
  1,887
  2,001
  2,119
  2,242
  2,370
  2,504
  2,644
  2,791
Funds from operations, $m
  1,429
  2,681
  3,077
  3,501
  3,954
  4,436
  4,944
  5,480
  6,042
  6,630
  7,244
  7,713
  8,381
  9,075
  9,797
  10,547
  11,327
  12,138
  12,980
  13,856
  14,768
  15,716
  16,703
  17,731
  18,803
  19,920
  21,085
  22,301
  23,571
  24,897
  26,283
Change in working capital, $m
  -383
  253
  274
  294
  314
  333
  352
  371
  389
  408
  426
  444
  462
  481
  500
  520
  540
  561
  584
  607
  631
  656
  683
  711
  741
  772
  805
  840
  877
  916
  957
Cash from operations, $m
  1,812
  3,471
  2,803
  3,207
  3,640
  4,102
  4,592
  5,109
  5,652
  6,222
  6,819
  7,269
  7,918
  8,594
  9,297
  10,027
  10,787
  11,576
  12,397
  13,250
  14,137
  15,060
  16,020
  17,020
  18,062
  19,148
  20,280
  21,461
  22,693
  23,981
  25,325
Maintenance CAPEX, $m
  0
  -237
  -276
  -318
  -363
  -411
  -462
  -515
  -572
  -632
  -694
  -759
  -827
  -898
  -971
  -1,048
  -1,127
  -1,210
  -1,296
  -1,385
  -1,477
  -1,574
  -1,674
  -1,779
  -1,887
  -2,001
  -2,119
  -2,242
  -2,370
  -2,504
  -2,644
New CAPEX, $m
  -490
  -654
  -711
  -764
  -816
  -867
  -916
  -964
  -1,012
  -1,059
  -1,106
  -1,154
  -1,201
  -1,250
  -1,300
  -1,351
  -1,404
  -1,459
  -1,516
  -1,576
  -1,639
  -1,705
  -1,775
  -1,848
  -1,926
  -2,007
  -2,093
  -2,184
  -2,279
  -2,380
  -2,487
Cash from investing activities, $m
  -4,191
  -891
  -987
  -1,082
  -1,179
  -1,278
  -1,378
  -1,479
  -1,584
  -1,691
  -1,800
  -1,913
  -2,028
  -2,148
  -2,271
  -2,399
  -2,531
  -2,669
  -2,812
  -2,961
  -3,116
  -3,279
  -3,449
  -3,627
  -3,813
  -4,008
  -4,212
  -4,426
  -4,649
  -4,884
  -5,131
Free cash flow, $m
  -2,379
  2,579
  1,816
  2,125
  2,462
  2,825
  3,214
  3,629
  4,068
  4,531
  5,018
  5,357
  5,890
  6,446
  7,026
  7,629
  8,256
  8,908
  9,585
  10,289
  11,020
  11,781
  12,571
  13,393
  14,249
  15,140
  16,068
  17,035
  18,044
  19,096
  20,194
Issuance/(repayment) of debt, $m
  2,912
  1,740
  1,881
  2,021
  2,158
  2,291
  2,422
  2,550
  2,676
  2,801
  2,926
  3,051
  3,177
  3,305
  3,437
  3,572
  3,712
  3,857
  4,009
  4,168
  4,334
  4,509
  4,693
  4,887
  5,091
  5,307
  5,534
  5,774
  6,027
  6,294
  6,576
Issuance/(repurchase) of shares, $m
  -13
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,929
  1,740
  1,881
  2,021
  2,158
  2,291
  2,422
  2,550
  2,676
  2,801
  2,926
  3,051
  3,177
  3,305
  3,437
  3,572
  3,712
  3,857
  4,009
  4,168
  4,334
  4,509
  4,693
  4,887
  5,091
  5,307
  5,534
  5,774
  6,027
  6,294
  6,576
Total cash flow (excl. dividends), $m
  505
  4,320
  3,696
  4,146
  4,619
  5,116
  5,636
  6,179
  6,744
  7,332
  7,944
  8,407
  9,067
  9,751
  10,462
  11,201
  11,968
  12,765
  13,594
  14,457
  15,354
  16,290
  17,264
  18,280
  19,340
  20,447
  21,602
  22,809
  24,071
  25,390
  26,770
Retained Cash Flow (-), $m
  -1,039
  -1,044
  -1,128
  -1,212
  -1,295
  -1,375
  -1,453
  -1,530
  -1,606
  -1,681
  -1,755
  -1,830
  -1,906
  -1,983
  -2,062
  -2,143
  -2,227
  -2,314
  -2,405
  -2,501
  -2,600
  -2,705
  -2,816
  -2,932
  -3,055
  -3,184
  -3,320
  -3,464
  -3,616
  -3,776
  -3,945
Prev. year cash balance distribution, $m
 
  3,156
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  6,431
  2,568
  2,933
  3,325
  3,741
  4,183
  4,649
  5,138
  5,652
  6,188
  6,577
  7,161
  7,768
  8,400
  9,057
  9,741
  10,451
  11,189
  11,956
  12,754
  13,584
  14,448
  15,348
  16,286
  17,263
  18,282
  19,345
  20,455
  21,614
  22,824
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  6,166
  2,351
  2,553
  2,738
  2,900
  3,036
  3,141
  3,212
  3,247
  3,244
  3,123
  3,056
  2,954
  2,820
  2,659
  2,475
  2,274
  2,060
  1,841
  1,621
  1,405
  1,199
  1,006
  829
  672
  533
  415
  316
  236
  172
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Stryker Corporation, together with its subsidiaries, operates as a medical technology company. It operates through three segments: Orthopaedics; MedSurg; and Neurotechnology and Spine. The Orthopaedics segment offers implants for use in hip and knee joint replacements, and trauma and extremities surgeries. The MedSurg segment provides surgical equipment and surgical navigation systems, endoscopic and communications systems, patient handling, emergency medical equipment and intensive care disposable products, and reprocessed and remanufactured medical devices, as well as other medical devices for use in various medical specialties. The Neurotechnology and Spine segment offers neurosurgical and neurovascular devices that include products used for minimally invasive endovascular techniques; products for brain and open skull based surgical procedures; orthobiologic and biosurgery products, including synthetic bone grafts and vertebral augmentation products; and minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke. This segment also provides spinal implant products, which consists of cervical, thoracolumbar, and interbody systems for use in spinal injury, deformity, and degenerative therapies. The company markets and sells its products to doctors, hospitals, and other healthcare facilities through company-owned sales subsidiaries and branches, as well as third-party dealers and distributors in approximately 100 countries. Stryker Corporation was founded in 1941 and is headquartered in Kalamazoo, Michigan.

FINANCIAL RATIOS  of  Stryker (SYK)

Valuation Ratios
P/E Ratio 31
Price to Sales 4.5
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow 28.2
Price to Free Cash Flow 38.7
Growth Rates
Sales Growth Rate 13.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 81.5%
Cap. Spend. - 3 Yr. Gr. Rate 20.2%
Financial Strength
Quick Ratio 15
Current Ratio 0
LT Debt to Equity 70%
Total Debt to Equity 72.4%
Interest Coverage 12
Management Effectiveness
Return On Assets 9.8%
Ret/ On Assets - 3 Yr. Avg. 7.3%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9%
Return On Equity 18.2%
Return On Equity - 3 Yr. Avg. 13.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 66.6%
Gross Margin - 3 Yr. Avg. 66.2%
EBITDA Margin 23.4%
EBITDA Margin - 3 Yr. Avg. 20.6%
Operating Margin 19.1%
Oper. Margin - 3 Yr. Avg. 16.9%
Pre-Tax Margin 17%
Pre-Tax Margin - 3 Yr. Avg. 15.5%
Net Profit Margin 14.5%
Net Profit Margin - 3 Yr. Avg. 11.4%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 29%
Payout Ratio 34.5%

SYK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SYK stock intrinsic value calculation we used $11325 million for the last fiscal year's total revenue generated by Stryker. The default revenue input number comes from 2016 income statement of Stryker. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SYK stock valuation model: a) initial revenue growth rate of 16.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SYK is calculated based on our internal credit rating of Stryker, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Stryker.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SYK stock the variable cost ratio is equal to 77.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $347 million in the base year in the intrinsic value calculation for SYK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Stryker.

Corporate tax rate of 27% is the nominal tax rate for Stryker. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SYK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SYK are equal to 35.6%.

Life of production assets of 17 years is the average useful life of capital assets used in Stryker operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SYK is equal to 13.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $9550 million for Stryker - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 372.199 million for Stryker is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Stryker at the current share price and the inputted number of shares is $50.8 billion.


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COMPANY NEWS

▶ Stryker Reported Strong Earnings in 1Q17   [Apr-28-17 05:18PM  Market Realist]
▶ Stryker Sees Composite Rating Move Up To 98   [Apr-27-17 11:17AM  Investor's Business Daily]
▶ Chipotle, Wynn, Arconic Beat; Stryker, Illumina Guide Q2 Profit Low   [Apr-25-17 06:06PM  Investor's Business Daily]
▶ Stryker reports first quarter 2017 results   [04:02PM  GlobeNewswire]
▶ You Should Own J&J, Zimmer Biomet Ahead Of Earnings: RBC   [Apr-12-17 02:50PM  Barrons.com]
▶ Stryker Stock Trades Ex-Dividend Wednesday   [Mar-28-17 10:17AM  Investopedia]
▶ Stryker Stock Trades Ex-Dividend Wednesday   [10:17AM  at Investopedia]
▶ Stryker to host conference call on April 25, 2017   [Mar-27-17 01:02PM  GlobeNewswire]
▶ Stryker announces Annual Meeting of Shareholders   [Mar-20-17 01:16PM  GlobeNewswire]
▶ Stryker declares a $0.425 per share quarterly dividend   [Feb-08-17 08:02AM  GlobeNewswire]
▶ Upbeat Q4 Earnings Lift Stryker   [Jan-25-17 11:50AM  at Barrons.com]
▶ These 3 Stocks Just Raised Their Dividends   [Dec-21-16 02:04PM  at Motley Fool]
▶ Hedge Funds Are Buying Stryker Corporation (SYK)   [Nov-28-16 09:06AM  at Insider Monkey]
Stock chart of SYK Financial statements of SYK
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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