Stryker: Acquisitions our top priority for cash

Stryker (NYSE:SYK) told analysts this week that mergers & acquisitions are its top priority for the $2.59 billion in ready cash it’s carrying on its balance sheet, with small or mid-sized deals more likely than a blockbuster like the much-speculated-upon possibility of a merger with rival Smith & Nephew (NYSE:SNN).

During a cocktail hour to kick off its analyst day in Kalamazoo, Mich., the orthopedics giant’s executives said M&A “is the company’s first cash use priority and the company remains actively engaged in seeking out deals,” according to Leerink Partners analyst Richard Newitter. Although CEO Kevin Lobo does “not feel in a rush” to close deals because its businesses are in “solid competitive positions,” Newitter wrote, Stryker is ready to be “opportunistic when the ‘right’ deal presents itself.”

Although both large and small deals are on the table (provided they make strategic sense), Stryker “is going to be very disciplined on price and [return on invested capital] ROIC timelines, and smaller/mid-sized deals are more ‘the norm,’” he wrote. That makes a deal less likely for Britain’s Smith & Nephew, which also has a large wound management business. Rumors were rampant last year that Stryker was in the hunt for Smith & Nephew.

Instead, Newitter wrote, Stryker is likely to limit its M&A targets to market segments in which it already has a footprint or could leverage an adjacent position. And if no opportunities surface that meet requirements, the company is prepared to be more aggressive in buying back shares, according to the analyst.

In March, Stryker’s board authorized a share repurchasing program worth $2 billion. Earlier this week, the company said it would move ahead with a $1 billion deal it inked last year to settle thousands of product liability lawsuits over a pair of recalled metal-on-metal hip implants.