Value Investing WeWTF | No Mercy / No Malice (Very Funny and On-Point Take-Down of WeWork's S-1) |
| WeWTF | No Mercy / No Malice (Very Funny and On-Point Take-Down of WeWork's S-1) Posted: 27 Aug 2019 06:53 AM PDT |
| Posted: 27 Aug 2019 08:53 AM PDT https://spadeforesthome.files.wordpress.com/2019/08/strykersyk.pdf SUMMARY Between 1977 and 2004, legendary CEO John Brown (link) has transformed Stryker from a maker of hospital beds to a world-class medical technology company. "For three decades, one number has been synonymous with Stryker : 20 percent" (link). John Brown's successors were left with a bar set very high. The ensuing two decades of fierce competition for market shares and the quest to chase double-digit sales growth have left Stryker with what looks like a severely impaired corporate culture, billions of legal costs and an acquisition frenzy deteriorating the company balance sheet. The market has excessively rewarded current CEO Kevin Lobo's execution with share price rising at a +22% CAGR since 2012, at par with John Brown exceptional track record. But John Brown was delivering on execution as well, with +20% to +23% CAGR on sales, EPS and book value — all that with a positive net cash and organic growth. Kevin Lobo execution is showing a mid single digit growth on these metrics, adding $8 billion of debt to finance takeovers. Every year, an average of 20 to 25% of non-GAAP net income is now spent on legal liabilities and restructuring costs. The market shall properly identify their true nature: they are structural costs of doing business through acquisitions and ill-supervised sales practices, not a succession of 'one-time' charges. Stryker has a history of settling with regulators by pledging to reinforce internal controls: it has not shown corrective results. It appears that a sentiment of impunity has often prevailed, as illustrated by a myriad of historical personal misconducts at all levels of the hierarchy. The market shall be a pragmatic observer here. These behaviours will not disappear, and will not bankrupt the company either. They shall simply be factored in. Consequently, actual leverage of the company appears closer to 2.7x and there are substantial chances of an impending credit rating downgrade to A- or lower medium grade. Stryker became a serial acquirer, and the Sell Side coverage seems complacent, struggling to justify further upside to the name or current valuation to peers. Stryker lacks transparency on regulatory issues disclosures and potentially on goodwill accounting. Stryker is regularly omitting to disclose regulatory investigations to its investors. Today, intangibles marked at fair value account for half of the balance sheet. 56 acquisitions have been executed for $14 billion; not a single dollar of goodwill impairment has been recorded since 2010. Tangible book value is negative. A premium on execution quality or management excellence appears undue. A return of Stryker valuation to its peers average suggests a -25% to -35% share price adjustment. Stryker share price is at risk of repricing on two drivers: non-GAAP true cost of doing business and compressing premium to peers. Depending on their combined magnitude, a base case can be set at -25%, a bear case at -40%, and a bull case at the +5% Sell-Side 'blue sky' price target. Current price 217.14 / sh Regulators, media, industry observers and rating agencies are all speaking the same voice. "At Stryker, there appears to be a policy of rewarding management for the moral failings of their company." CBS News, February 2009 "The group of insurance companies say the Stryker scheme is part of larger corruption in the medical device industry, which has become known as the 'Prosthetic Mafia' in Brazil." Nexstar Broadcasting, November 2016 "Stryker's scale, product diversity, and growth profile from the acquisition […] are more than offset by the material increase in debt leverage." S&P rating agency, 2016 "Stryker has a horrible record of disclosing SEC investigations […] Big company or not, involvement in five SEC investigations in two years is a lot […] Stryker is a company that has no problem cutting corners or dancing on the edge of the law. Stryker appears to be a magnet for SEC investigations." Probes Reporter, April 2018 "Stryker's failures to implement sufficient internal accounting controls and keep accurate books and records are unacceptable, especially as this is not the first time the company has been charged for these types of violations"SEC's New York Regional Office, September 2018 "Stryker Corporation joined a rather ignominious list ofrecidivists under Foreign Corrupt Practices Act enforcement annuls." FCPA Compliance and Ethics updates, January 2019 [link] [comments]  |
| You are subscribed to email updates from Value Investing. To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google, 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States | |
No comments:
Post a Comment