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Hot Medical Stock Stryker Beats Q1 Estimates, Raises Guidance

Orthopedics giant Stryker ( SYK ) beat Wall Street’s Q1 estimates and raised guidance Wednesday, sending its stock up about 1% in after-hours trading. Stryker reported earnings of $1.24 a share, up 12% from the year-earlier quarter and topping analysts’ consensus of $1.20, according to Thomson Reuters. Sales rose 5% to $2.5 billion, slightly above consensus. On a constant-currency basis, sales grew 6.1% in the quarter. Stryker added half a percentage point to its full-year organic sales-growth guidance, now 5.5% to 6.5%. EPS guidance was raised and tightened to $5.65 to $5.80, from $5.57 to $5.77. For the second quarter, Stryker guided earnings of $1.33 to $1.38 a share, on the high side of Wall Street’s estimate of $1.34. Stryker’s sales grew across all three of its divisions — orthopedics, MedSurg and neurotechnology/spine — which CEO Kevin Lobo said provided the confidence to raise organic sales guidance this early in the year. “I feel very good about the strength of our entire business portfolio,” he said on a conference call with analysts. The major weak point was international sales — contributing more than a quarter of total revenue — which declined 4.6% on a reported basis and by a fraction on a constant-currency basis. The economic troubles in China and Brazil have been affecting the company since last year, but Lobo said he expects the impact to ease in the second half of this year. Last year’s Q1 was especially strong in emerging markets, sharpening the most recent quarter’s decline, he said. Also, he noted, “the inventory bleeds will eventually bleed out.” Analysts were also impressed by the 21% organic growth in the Neurotechnology unit, the fastest-growing subdivision in the company. The bulk of the business comes from Stryker’s line of catheters, stents and coils for treating hemorrhagic stroke, but the company also is seeing growth from its newer products treating ischemic stroke, which is a new market. “There are many strokes that hadn’t been treated prior,” Lobo said on the call. “When you’re creating a new market it’s difficult to predict the pace of growth, but there’s no doubt the growth will be very significant. Obviously, that contributed to the strong performance of neurovascular.” Orthopedics and MedSurg (a division of surgical products) both reported 4.6% organic growth in the quarter. Spinal products rose 8.9%. Analysts on the call also remarked on the improvement Stryker’s operating margin, which rose to 24.2% from 20.8%. Stifel analyst Rick Wise questioned how sustainable this was, given the ups and downs of margins in prior quarters, but Lobo sounded confident. “I’m not going to promise 90 basis points (of improvement) every single quarter, but we are committed to driving leverage at the operating level,” Lobo said. “You’ll see that this year, and you’ll see that when we provide guidance for you in 2017.” Interest expenses were somewhat higher than normal in the quarter due to three recent acquisitions: Sage Products, which makes oral, skin-care and cleaning products; Physio-Control International, which makes monitors and defibrillators; and Synergetics, which filled out the neurology & spine portfolio. Stryker management noted that both the Sage and Physio-Control deals had closed ahead of schedule, in early April. Stryker stock is up about 19% for the year, hitting a series of new highs since it broke out of a consolidation last month. Despite its recent pattern of single-digit growth, it has attained a strong Composite Rating of 91. In regular trading on the stock market today it rose 0.9% to 110.73 after hitting an intraday high of 110.97, a penny short of the all-time high it hit the previous day. About 90 minutes after the close, the stock had cracked 112.

Qualcomm Fiscal Q2 Earnings Top Estimates, But EPS Guidance Shy

Chip supplier Qualcomm ( QCOM ) posted better than expected fiscal second-quarter earnings after the market close Wednesday, but its EPS guidance lagged estimates, and shares were down nearly 3% in after-hours trading. Qualcomm reported revenue of $5.6 billion for the quarter that ended March 27, down 19% from the year-earlier quarter but beating the consensus estimate of $5.34 billion. Earnings per share minus items fell 26% to 1.04, but that number topped the 96-cent consensus estimate of analysts polled by Thomson Reuters. For its fiscal third quarter, Qualcomm guided to sales of $5.2 billion to $6 billion; the midpoint, $5.6 billion, was down 4% from the year-earlier quarter, but it was slightly ahead of the analyst consensus estimate of $5.56 billion for the quarter that ended March 27. Still, Qualcomm projected Q3 EPS in the range of 90 cents to $1.00, vs. 99 cents last Q3 and below the consensus of $1.02. Qualcomm CEO Steve Mollenkopf pointed to the quarter’s bright spots. “We delivered a stronger-than-expected quarter as we continue to execute our strategy for the next phase of growth,” Mollenkopf said in the company’s earnings conference call. “2016 is a transition year for Qualcomm, and we are making good progress.” He said that progress includes in its licensing business, but he said that stronger than expected performance across all of Qualcomm’s chipset and licensing businesses drove the Q2 beat. Tough contract negotiations have stunted Qualcomm’s licensing revenue growth, along with a royalty dispute with South Korea-based LG. Last year, there were a number of lawsuits globally related to Qualcomm’s licensing business. Investors are also concerned about the under-reporting of device sales among China vendors. The completion of new licensing deals has helped to alleviate those concerns. With its earnings results, Qualcomm announced that it had resolved a licensing dispute with LG “through good faith negotiations” that provides LG access to Qualcomm’s broad portfolio of patented technologies. “We are continuing to build momentum into the second half of our fiscal 2016 with traction for our Snapdragon processors in the premium and high tiers and strong execution of our strategic realignment plan,” Mollenkopf said. The Snapdragon chips are in such phones as Samsung’s new Galaxy S7 and S7 Edge. China Remains A Priority For Qualcomm As part of its transition, Qualcomm has focused on a $1.4 billion cost reduction plan, boosting cash flow and profit, bolstering research and development, positioning for industry growth and making China licensing a top priority, among other steps. The company says that it’s on track to realize at least $700 million in savings in fiscal 2016, an increase of $100 million from its original estimate. Mollenkopf said that Qualcomm has more than 100 licensing deals with companies in China and is in active discussions with others. The company has made notable progress signing China license agreements, Michael McConnell, an analyst with Pacific Crest Securities, said in a research note prior to the earnings report. It’s inked four of the top five China smartphone makers, led by Lenovo, to new license agreements, he wrote. Qualcomm said that its MSM (Mobile Station Modem) chip shipments reached 189 million, down 19% year over year but above the midpoint of its guidance range. For Q3, it expects MSM shipments of about 175 million to 195 million units, down 13% to 22%. Its MSM chipsets target higher-end smartphones. Sales of cellphones based on Qualcomm chips totaled $70.1 billion, down 8% but above the midpoint of the company’s guidance. Qualcomm ended the year with $30 billion in cash and equivalents. In fiscal Q2, Qualcomm’s chip technology unit, called QCT, reported revenue of $3.3 billion, down 25% year over year. Its licensing unit, QTL, reported revenue of $2.1 billion, down 12%. Mollenkopf said that growth markets for Qualcomm include automotive, wearable devices and the Internet of Things.  

SolarCity Flames On San Francisco Ordinance; Sunrun Sued

SolarCity ( SCTY ) stock flamed Wednesday, leading shares of rivals Vivint Solar ( VSLR ) and Sunrun ( RUN ), on a San Francisco, Calif., mandate requiring that solar panels be installed on most new construction under 10 stories tall. SolarCity stock rose 7.8% Wednesday. It was up as much as 13%. Shares of Sunrun and Vivint Solar rose a respective 3.6% and 1%. Introduced by San Francisco County Supervisor Scott Wiener, the ordinance requires solar panels or a solar-powered heating system be installed on new residential construction shorter than 10 stories and on new commercial buildings smaller than 2,000 square feet. The SF Board passed the measure unanimously on Tuesday. It goes into effect Jan. 1. Current California law already requires 15% of certain new construction to be “solar ready,” meaning it’s in an unshaded area. Wiener’s legislation builds onto San Francisco’s already burgeoning green efforts. In 2004, the city introduced a choice aggregation program dubbed CleanPowerSF. Sunrun Faces Four New Class-Action Lawsuits Over IPO In other solar news, Sunrun became the subject of four new class-action lawsuits on Tuesday alleging the No. 2 residential installer by market value “negligently prepared” its IPO, according to a claim by the Shareholders Association. The lawsuits stem, in part, from Nevada regulators’ decision in December to cut net-metering payments to solar customers. More recently, the Public Utilities Commission opted to not grandfather in existing customers under the old rates. New York, N.Y., law firm Levi & Korinsky alleges Sunrun’s IPO contained materially false or misleading statements related to its historical operating costs “by not disclosing the fixed grid costs being borne for it by public utilities where net metering-programs were being employed.” The claim further alleges Sunrun is charging well above wholesale rates for electricity sold to net-metering customers, didn’t have customers dispersed across 15 states and said “Sunrun’s ability to continue convincing customers to sign 20-year contracts was in jeopardy.” Sunrun went public in August 2015, opening below its 14 IPO price. Shares closed Wednesday at 7.27, 48% off Sunrun’s initial price.