Stryker CorporationSYKNYSE

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $330.10 per share(market-calibrated)

-14.7%

Upside to Fair Value

Current

$387.02

Pure Model

$323.64

Fair Value

$330.10

Bull Case

$425.36

Bear Case

$240.43

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

4.96%

Calibrated Growth

3.29%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $323.64.

What's Driving This Ratingfor SYK

✓

CapEx already efficient

CapEx at 2.55% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 17.78% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $9.3B (19.27% margin).

→

Moderate revenue growth

Analyst consensus projects 8.87% revenue growth, fading to 3.00% by Year 10. Revenue reaches $48.3B (vs $25.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $251.07/share (21.4x terminal FCF) while exit multiple gives $396.22/share (37.7x terminal FCF). The 24x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $387.02, the market implies 4.96% perpetual growth — 196bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.73% indicates efficient cash generation. FCF reaches $7.2B by Year 10 (14.95% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.87

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.41%

Cost of Debt

Pre-tax Cost of Debt2.74%

Tax Rate28.09%

After-tax Cost of Debt1.97%

Equity Weight (E/V)90.87%

Debt Weight (D/V)9.13%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.87% × 8.41%) + (9.13% × 1.97%)

= 7.82%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$27.3B	$32.2B	$37.9B	$43.0B	$48.3B
EBIT	$4.9B	$5.7B	$6.7B	$8.0B	$9.3B
Tax	$1.4B	$1.6B	$1.9B	$2.2B	$2.6B
NOPAT	$3.5B	$4.1B	$4.8B	$5.7B	$6.7B
+ Depreciation	$1.1B	$1.3B	$1.6B	$1.8B	$2.0B
- Capex	$698M	$821M	$967M	$1.1B	$1.2B
- Δ NWC	$415M	$468M	$522M	$453M	$263M
Free Cash Flow	$3.5B	$4.2B	$4.9B	$6.0B	$7.2B
Discount Factor	0.927	0.798	0.686	0.590	0.471
Present Value	$3.3B	$3.3B	$3.4B	$3.5B	$3.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.2B

Terminal Growth Rate3.00%

WACC7.82%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$154.4B

PV of Terminal Value$72.7B

Exit Multiple Method

Year 10 EBITDA$11.3B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$272.2B

PV of Terminal Value$128.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$34.1B

PV of Terminal Value$72.7B

Enterprise Value$106.8B

(-) Net Debt$10.8B

Equity Value$96.0B

Shares Outstanding382M

Price per Share$251.07

Exit Multiple Method

PV of Projected FCFs$34.1B

PV of Terminal Value$128.2B

Enterprise Value$162.3B

(-) Net Debt$10.8B

Equity Value$151.4B

Shares Outstanding382M

Price per Share$396.22

Pure Model Fair Value

$323.64

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
5.82%	$416.29	$438.66	$468.96	$512.31	$543.27
6.82%	$353.07	$365.60	$381.40	$401.96	$429.80
7.82%	$306.54	$314.29	$323.64	$335.16	$349.69
8.82%	$270.02	$275.14	$281.14	$288.27	$296.88
9.82%	$240.14	$243.69	$247.76	$252.48	$258.01

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$240.43

-37.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.09

Base Case

$323.64

-16.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.87

Bull Case

$425.36

9.9% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.74

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth8.87%

Year 3 Revenue Growth8.47%

Year 5 Revenue Growth7.97%

Year 7 Revenue Growth5.98%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin17.78%

Terminal EBIT Margin20.00%

Tax Rate28.09%

Historical Capex / Rev2.55%

NWC / Revenue18.65%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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