Stryke Hard: Spruce Point's Ben Axler Discusses His Research Shorting Stryker Corp (SYK:US)

Spruce Point Capital Management’s research on Stryker (SYK:US) can be found at https://www.sprucepointcap.com/stryker-corp/. For more fundamentally-driven investment research on stocks as well as crypto, please join https://www.SumZero.com.

00:00 Start
00:10 Divya Narendra introduction
01:34 Ben Axler: “Stryker a massive roll-up.”
01:44 Stryker pre-2009’s business and growth
02:16 Stryker’s debt and acquisitions: “size impeding its growth”
02:46 Spine business “problematic”
03:51 Sell-side consensus on estimates
04:30 SYK EPS, multiples
04:49 SYK portraying a “heavily-adjusted non GAAP earnings per share” (slides 25, 26)
05:12 Concern about cash flow
05:58 Problems managing and accounting for inventory
06:18 Mismanagement and excess of inventory (slides 65 - 67)
06:40 SYK deferred CapEx during Covid-19
07:08 SYK “caught in a margin squeeze”
07:18 Cash flow estimates coming down
07:50 SYK’s competitors
08:08 Company’s acquisition of Mako Robotics
09:02 Story behind Mako robots
11:10 SYK acquisitions
12:25 SYK’s tendency to overpay for acquisitions (slide 16)
13:32 “Extreme lapse of due diligence” in K2M acquisition
13:47 K2M executives involved in InPhonic scandal
14:15 Pattern of inventory irregularities
14:54 Goodwill impairment risk “extremely high”
16:54 SYK’s core stable business
17:55 “If they have (a stable core of reliable business), we can’t find it.”
18:09 Company “delaying bad news to investors”
18:24 50% of SYK sales are tied to elective surgeries; effect of COVID on business
19:36 FCF yield
20:00 Company buying back stock to offset tax issues
20:22 Sellside/Wall Street underestimates SYK’s CapEx
21:55 Trading comparable to SYK (Slide 193)
22:20 Wall Street not seeing big picture on SYK debt
24:10 Term loan and liquidity
25:00 More reasons why Spruce Point likes SYK as a short 1.5% short interest
25:20 Easy to hedge
26:00 Wall Street seems to be miscalculating share count
26:22 Analysts “struggling to justify pricing”
27:15 What the market is missing in developing SYK multiples
28:25 SYK acquisition of TSO3 (slide 162)
29:40 Spruce Point Letter to Harvard Business School Dean outlining concerns
30:16 Governance, huge retention bonus paid to CFO
31:04 Potential effects of inflation
32:06 Elective surgeries “basically consumer discretionary” purchases
33:00 Incoming catalysts for stock price
34:58 Potential risk to short thesis
35:17 Very little takeover risk
36:11 Closing remarks
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