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After an immediate gap higher near all-time highs following top and bottom-line beats in Q3, shares of Stryker (SYK) have started to fade. The medical device maker, specializing in joint replacement, also lifted the lower bounds of its FY24 adjusted EPS and organic net sales growth forecasts.

So why are shares not as lively as they were out of the gate today? SYK trades at a premium valuation with a forward sales and earnings multiple of 5.7x and 27.3x, respectively, significantly higher than one of its key rivals, Zimmer Biomet (ZBH), which trades at half these multiples, as well as Johnson & Johnson (JNJ). Given this, SYK's earnings are placed under a microscope, where minor weaknesses are magnified.

The central blemish, albeit small, is that SYK did not bump its FY24 outlook higher despite delivering meaningful outperformance in Q3. The company's FY24 numbers translate to a minor step-down in Q4. The underlying cause is unfavorable FX impacts, which, if sustained, will slightly impact sales and earnings. SYK still anticipates achieving the higher end of its full-year targets.

• Fueling SYK's confidence was another solid quarter. Adjusted earnings expanded by 17% yr/yr to $2.87 on a 12% jump in revs to $5.49 bln, both representing an acceleration from the yr/yr growth registered last quarter. Organic sales growth was 11.5%, which was on top of a healthy 9.2% lift in 3Q23. SYK mentioned that its pricing initiatives across its U.S. and international markets remained positive, providing a decent boost to its top line in the quarter.
• Every segment delivered double-digit net sales growth. MedSurg and Neurotechnology recorded a nearly 13% increase to $3.2 bln, primarily from higher unit volume. A highlight within this segment was the robust adoption of SYK's 1788 imaging platform, which can display items on a screen invisible to humans, making it critical technology for surgeons. Orthopaedics and Spine net sales improved by nearly 11% to $2.3 bln, again due to higher unit volume. SYK's Mako remains the star, enjoying steady adoption due to continuous knee and hip procedures.
• SYK's latest platform launches are also enjoying success. For instance, its Pangea Plating System, used in orthopaedics, is expected to launch in the U.S. by 2H25. Meanwhile, SYK's LIFEPAK 35 defibrillator and monitor already boasts a strong order book with sales beginning to ramp.

SYK delivered another round of consistent numbers in Q3, underscoring stickiness with its products and an expanding economic moat. Once surgeons become accustomed to certain equipment, it can be difficult for hospital systems to switch to competing technology. Meanwhile, Mako continues to demonstrate its technological advantages as its installed base continues to swell. Given SYK's global presence, particularly in knee, hip, and shoulder surgery, its long-term position remains sturdy.