The October Test Failed: Hips and Knees Stalled, Inari Took a Write-Down, and the Guide Gave Back Two Points

Results vs. Consensus

Q3 2026 Scorecard

Adjusted EPS consensus of $3.55 was the same in every read we cross-checked. Revenue consensus sat at $6.61B to $6.62B, and the miss is 1.4% to 1.5% on either anchor. We found no reliable Street figure for quarterly organic growth, so the scorecard grades it against the company's own July path. Quarterly free cash flow comes from subtracting the six-month statement from the nine-month statement, so both endpoints are filed figures.

Year-Over-Year Comparison

Net sales growth computes to 7.6% from the rounded dollar figures. The company prints 7.7% on unrounded figures, and organic growth was also 7.7% because currency and acquisitions netted to zero. The adjusted margin changes use the percentages as printed in the reconciliation.

Nine-Month Comparison

The nine-month column holds the full-year arithmetic, and it is where the guide cut is easiest to see.

Quarter-Over-Quarter Comparison

Stryker's sequential top line is usually uninformative because of its fourth-quarter skew. This year the second-to-third-quarter step was supposed to be the acceleration, the point where make-to-order capital and rescheduled procedures stacked on top of a 9% base. The two-year stack shows the opposite. It fell two points, so the base business slowed underneath the catch-up rather than carrying it.

Revenue

Net sales of $6,520M grew 7.7% reported, in constant currency and organically. MedSurg and Neurotechnology grew 9.1% organic and Orthopaedics 5.9%. Against a third quarter of 2025 that itself grew 9.5% organic, the two-year stack is 17.2 points. That compares with 19.2 in the second quarter and with roughly 21 points that the July guide midpoint needed in the second half.

"While we delivered solid growth in several businesses, our overall results fell short of our expectations." — Kevin Lobo, Chair and CEO

The shortfall has a clear shape. The capital-heavy MedSurg businesses did roughly what July implied: Endoscopy U.S. grew 13%, Medical U.S. 10%, and Ortho Tech U.S. 18% on Mako and power tools. The procedure-driven implant businesses did not. U.S. Knees grew 1.3%, U.S. Hips fell 0.6%, and U.S. Trauma and Extremities slowed to 4.5% against a 13.2% comparable. Instruments U.S. grew 4.8% against a 15.3% comparable, with neurosurgical capital deferred ahead of a new aspirator launch.

Assessment: This is not the miss we were watching for. We built the October test around capital conversion, the bucket that depends on factory output. Capital mostly held. What failed was the part of the business we treated as the stable base: implant procedures in the most profitable segment. A miss in capital would have been a timing problem. A miss in hips and knees is a growth-rate problem, and the guide now carries it into the fourth quarter and, implicitly, into 2027.

Margins

Adjusted gross margin of 65.4% expanded 40 bps and adjusted operating margin of 26.2% expanded 60 bps. Adjusted SG&A was flat as a share of sales and adjusted R&D fell 20 bps. On a quarter that missed revenue by $100M, the company still delivered operating leverage, which is the strongest evidence yet that the cost program is real rather than a by-product of volume.

"The improvement reflected a net tariff benefit and benefits from operational efficiencies." — Preston Wells, CFO

The segment split in the 10-Q is less comfortable. MedSurg and Neurotechnology operating margin rose 260 bps to 28.7%, on 110 bps of SG&A leverage and 50 bps of lower manufacturing cost. Orthopaedics fell 120 bps to 31.2%: SG&A cost 110 bps and manufacturing and supply chain cost 70 bps, partly offset by 40 bps of volume. The company's highest-margin segment is now its weakest grower and is losing margin, while the lower-margin segment carries both the growth and the leverage. The 10-Q says it expects segment mix to weigh on gross margin "for the foreseeable future" for that reason.

Assessment: The margin pillar survived a revenue miss, and that matters. It does not mean margins are clean. The net tariff benefit appeared again as the first-named gross margin driver and is still unsized after three quarters. The segment bridge also shows the expansion coming from the business mix that structurally lowers gross margin over time. Expect margin expansion to continue, but from cost discipline in MedSurg rather than from orthopaedic operating leverage.

Earnings

Adjusted EPS of $3.52 grew 10.3% on adjusted net earnings of $1,357M (+10.1%) and a diluted share count 0.5% lower at 384.7M. That count only partly reflects the August buyback. Reported EPS fell 11.7% to $1.96 because of the $293M impairment, which is not tax-deductible and pushed the reported tax rate to 24.5%. Other adjustments were a $77M Spinal Implants sale-related charge, $37M for terminating sales relationships in certain countries, $29M of other charges, and $32M of regulatory and legal matters.

The adjusted tax rate of 16.0% ran 200 bps above last year's 14.0%, and the full-year range moved up to 15.5% to 16%. Adjusted other expense of $91M was $25M lower on reduced debt, and the full-year figure moved to about $400M from about $420M. These two changes roughly cancel for the year. In the quarter, the tax rate was the difference between a miss and an in-line print.

Assessment: The earnings quality is acceptable and the cash quality is good. Quarterly free cash flow fell 9.5% to $1,224M as operating cash flow fell 5.1% and capex rose $50M, but nine-month conversion of 71% sits inside the 70% to 80% target that management stopped restating in July. Inventory rose $437M since December, which is consistent with a company building to an order book it cannot yet ship. EPS is not the problem this quarter. Revenue is, and the EPS guide only holds because management is pulling cost harder.

Segment Performance

The Ortho Tech recast effective in the first quarter is reflected in both columns below, so the comparisons are like-for-like. Comparisons against business-line figures published before the first quarter of 2026 are not.

Reportable Segments

Business Lines

Percentages are as disclosed and computed on unrounded figures. The U.S. organic column is from the release's U.S. lines and management's disclosure on the call. It is a different measure from the two total-business columns to its left.

Inside Ortho Tech and Instruments

Segment Operating Margin

Geographic Mix

MedSurg and Neurotechnology: the capital engine is running

Organic growth of 9.1%, with 9.6% in the U.S. and 7.2% internationally, is essentially the second quarter's 9.2%. Endoscopy led at 13.9% reported, on operating-room infrastructure and renovation projects and double-digit Sports Medicine growth from an expanded shoulder implant range. Medical grew 9.7% with U.S. organic of 10%, including double-digit growth in Sage and in the Smart Care software and communications business. Management said Smart Care had the best quarter in its history.

"Medical U.S. organic sales increased 10%, including double-digit performances from our Sage and Smart Care businesses, while capital demand remains elevated across our portfolio." — Preston Wells, CFO

Instruments was the soft line at 5.1% reported and 4.8% U.S. organic, against a 15.3% comparable. Management tied it to neurosurgical customers deferring capital ahead of a new ultrasonic aspirator cleared by the FDA in October. Interventional Spine and Surgical Technologies grew double digits.

Assessment: This segment did its job, and that is the most important nuance in the quarter. The capital order book is real, it is being shipped at a steady rate, and management says it is still not draining the backlog. The part of our July checklist that this segment owned, capital conversion, came in at "steady" rather than "accelerating." That alone would have been a soft pass. The problem is that the guide cut now treats capital execution as a risk to provision for rather than an upside to bank.

Vascular: a one-time item over a business that is still broken

Vascular revenue of $566M grew 8.0% reported, and U.S. organic growth swung to 13% from minus 6.7% in the second quarter. That swing is not a recovery. The quarter included one-time revenue from the Peripheral Vascular joint venture in China, triggered by a regulatory approval milestone in September. Management would not size it, and said the underlying business performed much as it had in the second quarter. International Vascular grew 0.8% in constant currency.

"This benefit helped offset the impact of lost revenue from the ongoing supply disruption that we discussed during our last earnings call." — Kevin Lobo, Chair and CEO

If underlying U.S. Vascular was flat, the one-time item is about $37M. If it repeated the second quarter's 6.7% decline, as the CFO's description implies, it is about $56M. That is 60 to 90 bps of company growth. Those are our bounds, not a disclosure. The same quarter carried a $293M goodwill impairment of the Peripheral Vascular reporting unit, which we discuss in Key Topics.

Assessment: Strip out the milestone and Vascular is where we left it in July: a supply-constrained business losing accounts it will have to win back. The new information is that the supply fix slipped a quarter: from a manageable backorder by the end of the third quarter, as promised in July, to supply normalizing through the end of the year. The company itself has now cut the long-range cash flows of the unit. The AVS lithotripsy approval expected around year-end and the PEERLESS II data in 2027 are the remaining catalysts.

Knees and Hips: no longer outgrowing the market

U.S. Knees grew 1.3% and U.S. Hips fell 0.6%, down from 6.2% and 4.9% in the second quarter. Internationally, Knees grew 1.1% and Hips fell 0.8% in constant currency. Combined, the two businesses are $1,088M of quarterly revenue, about 17% of the company, and essentially flat year over year.

"Beginning with Hips and Knees, it is now clear that there is a market slowdown." — Kevin Lobo, Chair and CEO

Management named three causes. The first is a softer U.S. market from affordability pressure, higher deductibles and more pre-authorization denials. The second is a soft Europe and Middle East. The third, which is the more important admission, is that Stryker is "not winning at our historical rate," with the July SAP go-live and the lingering cyber disruption cited as distractions. Management put the market at roughly 2.5% this year and said the third quarter was slower than that.

Assessment: A company that grew 200 to 300 bps above its orthopaedic market for five years has, on its own estimate, grown at or slightly below that market for several quarters. Mako is placing robots at a record pace. That makes this the first quarter in which the robotics flywheel, our first bull pillar, failed to deliver its stated output: implant share. Management's fix is a power hip impactor in 2027 and sales incentives for Mako RPS. Both are plausible, and neither is evidence yet.

Ortho Tech: the robot is selling

Ortho Tech grew 15.8% reported and 18.1% in the U.S. Inside it, Other Orthopaedics, which includes Mako, grew 37.7% to $219M, and Orthopaedic Instruments, the power-tool business, grew 8.7% to $535M. Management called Mako growth "tremendous," with a continuing balance of upgrades and new installations since the Mako 4 launch.

"And then Mako RPS is off to a slow start, really good customer feedback, but we've got to get our sales force playing offense and a bit distracted last quarter." — Kevin Lobo, Chair and CEO

Assessment: The divergence between Ortho Tech at plus 18% and Knees and Hips near zero is the most important chart in the quarter. Capital placements are running ahead of procedure pull-through. That can mean the installed base is being built for share gains that arrive later, or that robotic adoption is becoming a feature every competitor offers rather than a reason to switch. One quarter cannot settle which. Two or three more quarters of this gap would settle it against us.

Trauma and Extremities: the shoulder holds the line

Trauma and Extremities grew 5.3% reported and 4.5% in the U.S., against a 13.2% comparable. Upper extremities remained strong, helped by Mako Shoulder on the Mako 4 platform. Management said the SAP go-live hit core trauma "pretty significantly," and guided to a strong fourth quarter for the business.

Assessment: Shoulder is the clearest evidence that the orthopaedic weakness is specific to hips and knees rather than a broad loss of commercial capability. The ZuriMED acquisition, a rotator-cuff augmentation platform, adds to the strongest franchise in the segment. Core trauma is the line to watch in the fourth quarter. It has no market-slowdown explanation, so its recovery is a direct test of the SAP claim.

International: steadier than the U.S. implant business

International revenue of $1,570M grew 5.7% reported and 6.0% in constant currency, with MedSurg international organic growth of 7.2% and Orthopaedics international of 4.4%. Growth was led by Australia, Germany, Canada and India in MedSurg, and by Canada, Japan, Australia, Germany and India in Orthopaedics. Management called Europe and the Middle East soft in large joints, citing regional disruption, strike-related delays and government funding decisions.

Assessment: International slowed from the second quarter's 8.9% organic but remains a steady contributor. The large-joint softness here has policy and labour causes rather than a share explanation, which makes it the more reversible half of the orthopaedic slowdown.

Key Topics & Management Commentary

Overall Management Tone: Contrite on the quarter and steady on the long term, with the posture of a team that had pre-announced the bad news in September and now had to size it. Management was candid about the market and about its own share performance in hips and knees. It was much less forthcoming on Peripheral Vascular, where the impairment went unmentioned and the one-time revenue went unsized. The confident tone of July is gone, replaced by guidance that assumes no improvement in anything management cannot control.

1. The Guide Cut, Decomposed

Full-year organic guidance fell to 6.5% to 7.0% from 8.3% to 9.3%. At the midpoints that is 205 bps, or about $515M of revenue on the 2025 base. Weighting each quarter's organic rate on its prior-year revenue, the third quarter fell about $233M short of the July path and the fourth quarter has been cut by about $282M. The new guide implies 6.7% to 8.5% organic in the fourth quarter, about 7.6% at the midpoint, essentially the third quarter's rate.

"Based on our year-to-date results, we are revising our full year guidance to reflect softer hip and knee procedure trends, lingering supply constraints in peripheral vascular and mitigation of operational execution risk related to capital equipment sales." — Preston Wells, CFO

The more revealing number is the second half as a whole. Third-quarter actual plus fourth-quarter implied is about $1,013M of organic growth, or 7.65% on the second half of 2025. At the second quarter's 9.0% run-rate, the same half would have produced about $1,190M. In July the guide embedded $211M to $463M above that run-rate, which we called the catch-up. The new guide sits about $178M below it. There is no catch-up left in the guide, and the base has slowed.

Assessment: In July we argued the second half required the backlog to ship, not the base to accelerate. That argument was right about capital and wrong about the base. The base business decelerated by more than the catch-up was worth, in the one segment we had not stress-tested. The guide now asks only for the third quarter's rate again, which is achievable. It also means 2026 ends with the cyber hole unfilled on the company's own numbers.

2. Hips and Knees: Market Slowdown or Lost Share?

Management's answer is both, and the proportions matter for 2027. On the market, it cited affordability, rising pre-authorization denials, a large hospital operator's report of a significant slowdown, and soft European and Middle Eastern markets. It estimated the market at about 2.5% for the year and slower in the third quarter. On share, it said Stryker is no longer winning at its historical rate.

"In addition to the softer market, we have not been winning at our historical rate." — Kevin Lobo, Chair and CEO

Investor relations added the trailing view: over the past twelve months there has been no notable movement in share, and over the past couple of quarters Stryker has grown more in line with the market after years of exceeding it. Management also distinguished its reported growth from competitors' bulk sales, saying it does not do them and reports price.

"We're assuming it stays where it is right now, the market stays where it is." — Kevin Lobo, Chair and CEO

Assessment: A market at 2.5% with Stryker growing at it is a profitable but ordinary orthopaedic business. A market at 2.5% with Stryker back to 200 to 300 bps of outgrowth is the franchise we underwrote. The distinction will not be visible until competitors report and the SAP distraction clears. The guide's assumption that nothing improves is the right one to make, and it is the one we now use.

3. The SAP Go-Live: A Fourth Self-Inflicted Disruption

The Orthopaedics businesses moved onto SAP in July, the last of Stryker's businesses to do so. Management said the system works but that it delayed order entry, distracted the sales teams and hid the market slowdown until September.

"This is the last of our businesses to go on to SAP. And while the system is functioning well, it has created a distraction for our teams and delayed our visibility of market conditions." — Kevin Lobo, Chair and CEO

The sequence now runs as follows. In 2025, Inari lost sales-force members. In March 2026, a cyber intrusion took manufacturing offline. In the second quarter, a single Inari plant failed. In July, an ERP migration in the company's highest-margin segment cost it visibility of its own order book. Management said the ERP effect also hit core trauma "pretty significantly."

Assessment: Each event has a reasonable explanation, and none is a demand problem. Taken together they describe a company whose operating machine, the thing the premium multiple pays for, has been absorbing one disruption per quarter. Scheduling a major ERP cutover in the orthopaedic business four months after a cyber shutdown is a judgment call, and in hindsight a poor one. The good news is that it is the last migration.

4. The Robotics Flywheel Without the Flywheel

Mako sold strongly again. Other Orthopaedics, which includes Mako, grew 37.7%, and U.S. Ortho Tech grew 18%. But the two launches meant to convert that installed base into implant share, Mako RPS for the manual and ambulatory channel and the Triathlon Gold knee, are behind plan.

"Although Mako sales have been strong again this year, we are behind our expectations on new product sales from Mako RPS and Triathlon Gold." — Kevin Lobo, Chair and CEO

Management's answer has three parts. Sales incentives now lean into RPS. A power hip impaction system launches in 2027 to fill what the CEO called "an important product gap in our hip portfolio." The medial stabilized knee insert is doing well. Asked about a competitor's new orthopaedic robot due next year, the CEO reserved judgment and said robots are hard.

"Finally, as a leader in power tools, we are excited about bringing a power hip impaction solution to the market next year, addressing an important product gap in our hip portfolio." — Kevin Lobo, Chair and CEO

Assessment: The admission of a product gap in hips is new and important. A company that has led U.S. hips on robotic differentiation is now saying a hand-held power tool is the missing piece for competitive conversions. That points to a hip franchise competing on instruments as much as on the robot. The flywheel is intact as an asset and is not currently producing share. That moves Bull-1 to at-risk.

5. Peripheral Vascular: The Impairment Nobody Discussed

The release shows a $293M goodwill impairment without naming the business. The 10-Q, filed the morning after the call, places it in the Peripheral Vascular reporting unit, which holds Inari and, since May, AVS. The stated driver is a reduction in forecast cash flows from near-term operational and supply constraints and "a longer expected period to achieve anticipated growth and market recovery." Those inputs came from the long-range plan the company approved during the quarter. Neither management nor any analyst raised it on the call.

"As we came back up after the cyber incident, we had a lot of challenges with our manufacturing facility. And that put us in a back order, and that was -- has been very, very painful." — Kevin Lobo, Chair and CEO

After the charge, Peripheral Vascular goodwill is about $3,259M. The 10-Q's sensitivity table is unusually stark. A 100 bp rise in the discount rate would cut fair value 15% and add $823M of impairment. A 100 bp lower long-term operating margin would add $497M, and 100 bps lower long-term growth would add $145M. Inari cost $4,810M net of cash in February 2025.

Assessment: The impairment is non-cash and excluded from adjusted EPS, so it changes no estimate. It changes the evidence. Twenty months after closing, the company's own valuation of the unit says its cash flows will arrive later and smaller than the purchase assumed. The unit now has almost no fair-value cushion, so a further charge is plausible if the supply fix slips again. Leaving a $293M charge out of a call that discussed Peripheral Vascular at length is a disclosure choice we note.

6. Capital: Demand Intact, Conversion De-Risked

Capital demand is the part of the July thesis that held. Investor relations said the order book remains strong and elevated. The CEO said Stryker is not draining its backlog and is adding capacity, especially in hospital beds, where long replacement cycles extend the ramp of products like LIFEPAK 35 and ProCuity. Medical and Endoscopy grew 9.7% and 13.9%.

"We're seeing our order book being elevated, and we're not draining our backlog." — Kevin Lobo, Chair and CEO

Yet the guide cut includes "mitigation of operational execution risk related to capital equipment sales." Asked whether that was conservatism or something seen in the market, the CFO said it was conservatism. Demand is there, production is ramping, and the guide no longer assumes every unit ships before December.

Assessment: On a strict reading, our July test, whether the backlog converts on schedule, failed. The backlog is not converting fast enough for the company to keep it in the guide. On a fair reading, it failed for the benign reason: capacity, not cancellations. The zero-cancellation claim from July was not repeated, and nothing contradicted it. This bucket is deferred revenue in 2027 rather than lost revenue, which is the main reason our 2027 estimate falls only modestly.

7. The Margin Algorithm Holds

Adjusted operating margin expanded 60 bps in a quarter that missed revenue, and nine-month margin is up 30 bps. Our arithmetic on the new EPS guide implies about 31% adjusted operating margin in the fourth quarter, roughly 80 bps above last year. That gives about 45 bps of full-year expansion, close to the roughly 50 bps described in April. The CFO reaffirmed the three-year commitment without naming a 2026 figure.

"Looking at the margins, our expectation around margins is that we want to continue to deliver what we committed to a year ago as well." — Preston Wells, CFO

The guide cut also shows the lever. At a 26% adjusted operating margin, $515M of lost revenue would cost roughly $0.29 of EPS. The guide midpoint fell $0.175. Lower other expense and a higher tax rate roughly cancel, so cost discipline absorbs the rest.

Assessment: This is the pillar that kept the stock from falling further, and it deserves the credit. A company that holds EPS growth near 10% through a 205 bp organic cut has real cost control. Two cautions remain. The orthopaedic segment's margin is falling, and the gross margin benefit from tariffs remains unsized inside adjusted results.

8. Succession: Spencer Stiles Takes Over on January 1

On October 6, Stryker announced that Kevin Lobo will step down as CEO on December 31 and become Executive Chair, and that Spencer Stiles will become CEO on January 1, 2027. Stiles, 50, has been President and Chief Operating Officer since January 2026. Before that, from 2019, he was Group President of Orthopaedics. Lobo has been CEO since October 2012, and this was his 57th and last earnings call in the role.

"As this is the last of 57 earnings calls as CEO, I would have preferred to deliver better news, but we've demonstrated before that our business is resilient, our foundation and culture are strong, and we remain confident in our ability to deliver on our long-range financial commitments." — Kevin Lobo, Chair and CEO

The transition is orderly, internal and long planned, and Lobo stays as Executive Chair. Two facts deserve attention. The incoming CEO ran the business that is now underperforming until ten months ago. He will also set his first annual guidance in January, from a base the outgoing CEO has just reset.

Assessment: Internal successions at Stryker have historically meant continuity, and we expect continuity in strategy. The risk is in the numbers. A new CEO's first guide has every incentive to be beatable, and the market slowdown and execution distractions give him the reasons. We treat a conservative 2027 guide as more likely than not, and it is the main reason we are not buying the de-rating today.

9. CMR Surgical: A Toe Into Soft-Tissue Robotics

On October 12, Stryker agreed to invest about $400M in CMR Surgical preferred equity, become the exclusive U.S. sales agent for the Versius surgical robot, and take an exclusive option to acquire the rest of the company. CMR keeps development and ex-U.S. commercialization. The 10-Q expects the deal to close in the fourth quarter. Management also closed the ZuriMED acquisition the week of the call.

"Soft tissue robotics is an attractive adjacency that is a natural extension of Stryker's strength in endoscopy, visualization and enabling technologies." — Nick Mead, VP Investor Relations

The CEO was clear that the plan is to buy the company eventually, that the structure is meant to de-risk the U.S. commercial test before committing to full ownership and ongoing development costs, and that the target is conversion of open and laparoscopic procedures rather than head-to-head competition with the incumbent.

Assessment: The structure is sensible. It is an option, not a commitment, and Stryker brings the U.S. sales capability it knows how to run. It is also a new call point and a new SG&A line, against an incumbent with a decades-long installed base, announced in a quarter when the company's existing robotics platform is not converting into share. We would not credit it with any value in 2027 and would treat the cost of a U.S. robot sales force as a modest drag.

10. The Buyback: Well Intended, Badly Timed

Stryker repurchased $1.0B of stock in the third quarter, its first buyback in about six years: 2.8M shares in August at an average $335.17 and 0.2M in September at $321.61. That left $33M of authorization at quarter end. The board added $3.0B in October.

"Additionally, we received Board authorization for another $3 billion towards future share repurchases, which provides us additional flexibility while preserving our capacity to invest in strategic M&A growth opportunities." — Preston Wells, CFO

The average purchase price of $334.46 is 12.7% above the reaction-day close. The authorization ran out in early September, days before the stock fell to the $270s, so the company could not buy at the low. Management restated that M&A remains the first capital priority and that the buyback is opportunistic.

Assessment: We would not judge a buyback on two months of price action, and the new $3.0B arrives with the stock 13% cheaper than where the first $1.0B was spent. The signal that matters is the size. A $3.0B authorization alongside a $400M CMR investment and continued M&A tells you the balance sheet is not the constraint. It also leaves a fair question: whether the acquisitions that rank first have earned that ranking, given this quarter's impairment.

11. The First Look at 2027

Management will not guide until early 2027 but gave the frame. Stryker's weighted market growth, put at about 6% a year ago, has probably "taken a little bit of a tick down" because of hips and knees. The goal is growth at the high end of those markets. Margin commitments from a year ago stand. On cyber, the CFO said most of the lost business has been made back at different points in time, so 2027 comparisons will need quarter-by-quarter explanation.

"While we will not provide formal guidance until early next year, we do expect to deliver growth at the high end of our markets." — Preston Wells, CFO

The product list for 2027 is long: a next-generation Neptune waste-management system in the first half, a new 1888 visualization platform, the System 10 power-tool platform, the hip impactor, AVS's lithotripsy device after an expected year-end approval, and PEERLESS II data for FlowTriever. The CEO did not call it a "super cycle." He said this round of launches is more spread out than the last cluster.

Assessment: Read literally, the framework points to organic growth near 6% in 2027, against a year in which the cyber comparison is easy in the first quarter and hard later. That is a perfectly good medtech growth rate and well below the 8.0% to 9.5% Stryker originally guided for 2026. Our 2027 estimate moves to match. The product list is real but back-end weighted, which supports 2028 more than 2027.

12. Smart Care and Medical: The Under-Discussed Strength

The Medical business grew 9.7% with U.S. organic of 10%. Inside it, the Vocera and care.ai Smart Care business had what the CEO called its best quarter ever, with "very high double-digit growth." Management said the integration is now smooth, the platform has moved to the cloud, and orders are picking up as hospitals adopt virtual nursing to raise productivity.

"So the first thing I'd say is Smart Care had its best quarter in our history this past quarter." — Kevin Lobo, Chair and CEO

Assessment: Smart Care is small relative to Medical, and one strong quarter after a slow integration is a start, not a trend. It matters because it is the clearest counter-example in the quarter to the integration problems at Inari: an acquisition that struggled and is now working. Stryker does improve acquired assets. It just takes longer than the deal models assume.

Guidance & Outlook

The guide rests on an explicit assumption: the procedure environment of the third quarter continues, capital demand stays strong, and the fourth quarter grows at about the third quarter's rate. The CFO named Trauma and Extremities, Medical and Instruments as the businesses expected to carry the fourth quarter. He also said Peripheral Vascular should be a little better underlying but still pressured.

"Our updated organic sales guidance anticipates a similar overall organic growth rate for the company in Q4 as we achieved in Q3. This assumes a continuation of the procedure environment we observed this quarter as well as continued strong capital demand where we continue to maintain an elevated order book." — Kevin Lobo, Chair and CEO

Implied fourth-quarter ramp: Nine-month organic growth is about 6.4%. The full-year range therefore needs 6.7% to 8.5% in the fourth quarter, about 7.6% at the midpoint, against an 11.0% comparable. On earnings, nine-month adjusted EPS of $9.81 leaves $4.99 to $5.09 for the fourth quarter, growth of 11.6% to 13.9% against $4.47. That needs about 31% adjusted operating margin, roughly 80 bps above the fourth quarter of 2025. The third quarter delivered 60 bps.

Street at: Full-year adjusted EPS consensus entering the print was $14.95, the old guide floor. The new $14.85 midpoint is 0.7% below it, so the full-year EPS revision is small. The larger revisions will be to 2027 revenue, where models built on 8% to 9% organic in 2026 now face a company pointing to the high end of a market it says is growing more slowly.

Guidance style: Stryker's habit is to guide conservatively and raise. This year it held in April, narrowed in July and cut in October, and in September it flagged the problems behind the cut at a conference rather than through a filing. The new guide is built to be met: it assumes no market recovery and has provisioned for capital slippage. We think the fourth quarter lands inside the range. The record on 2026 guidance means January's 2027 guide will be built with more cushion than Stryker has used before.

Analyst Q&A Highlights

How Slow the Large-Joint Market Has Become

The opening question went straight to the orthopaedic market and asked for a number. Management gave one: roughly 2.5% this year, a clear step down from the past five or six years. It added that extremities are not affected and that the slowdown is confined to hips and knees. Management also conceded that the noise from the cyber event and the ERP migration delayed its own recognition of the trend until early September.

Q: "First, Kevin, clearly disappointing to hear about the ortho market. Where do you think market growth is now? Anything the industry could do to help stem the decline?"
— Robbie Marcus, JPMorgan

A: "It's hard to estimate exactly, but I would say market growth is kind of in the 2.5% range this year. That's what we think, which is definitely a step down from where it has been in the last 5, 6 years."
— Kevin Lobo, Chair and CEO

Assessment: A specific market figure is more than most management teams volunteer, and it gives investors a benchmark. It also sets up the follow-up question. On that number, Stryker's flat U.S. hips and knees were below market in the quarter.

Whether a Flat Quarter Means Lost Share

The sharpest exchange on the call did the arithmetic out loud. If the market grew about 2.5% and Stryker's U.S. hips and knees were roughly flat, Stryker lost share in the quarter. Management answered that it does not read hip and knee share from a single quarter, that the 2.5% is a year-to-date and trailing view, and that the market slowed further in the third quarter.

Q: "Was that kind of your estimate of the year-to-date growth or the growth in the third quarter? Because just looking at your numbers in the third quarter, it looks like you were about flat, which would imply a fair bit of market share loss."
— Michael Matson, Needham & Company

A: "But that's our read on the market kind of year-to-date is that -- call it roughly 2.5% is what we're assuming growing."
— Preston Wells, CFO

Assessment: The answer does not dispute the share loss. It moves the reference period. If the market slowed in the third quarter, part of the gap is market. If Stryker was distracted by SAP, part is share. Management has already said both are true, so the third quarter almost certainly included some share loss. We will know the proportion when competitors report.

Why the Slowdown Surfaced Only in September

A questioner suggested conditions worsened late in September, after the investor conference remarks. Management rejected that and gave a more uncomfortable explanation: the slowdown was there all quarter, but the July ERP migration delayed order entry so much that management could not see it until September.

Q: "Kevin, when you think about calling out market slowdown versus the winning rate, what data points is helping kind of build out what's the market slowdown versus the win rate?"
— Travis Steed, Bank of America

A: "Look, I wouldn't say things worsened in September. We only gained visibility to the quarter kind of in the September time frame because there was huge delays in order entry given the change to SAP."
— Kevin Lobo, Chair and CEO

Assessment: This is the most important admission on the call. A company that cannot see its own orthopaedic order flow for two months has an internal control problem, not just a market problem. The July guidance, which narrowed rather than cut the range, was set in the same month the migration began. That weakens confidence in any guidance number given before the ERP is fully stable.

What "Capital Execution Risk" in the Guide Actually Means

The guide cut listed capital execution as a reason, which sits awkwardly beside management's description of strong capital demand. A questioner asked whether it was conservatism or a new market signal. The answer was conservatism. Demand is strong, production is ramping, and the guide now allows for not shipping everything by December.

Q: "Are you saying you're just being more conservative about what's assumed between now and year-end just to absorb any delays that might crop up? Or is there more to it in terms of what you're seeing out there in the market?"
— Christopher Pasquale, Barclays

A: "So again, it's a bit of just a more conservative view in terms of our ability to just make sure that we are executing at the highest level to make sure that we can meet all the demand that is out there from a capital standpoint."
— Preston Wells, CFO

Assessment: The answer is credible and consistent with the segment results, where the capital businesses grew. It also concedes the point we tested in July. The backlog is not converting fast enough to keep in the guide. Revenue deferred by factory capacity is still revenue, which is why this exchange supports our 2027 estimate more than our 2026 one.

Whether Six Percent Is the Floor for 2027

A questioner tried to pin the 2027 framework to a number, reading the prepared remarks as setting about 6% as a floor for company growth. Management declined to confirm it and said it was offering an indicator of how it is starting to think about 2027, not guidance.

Q: "And I just want to make sure, it sounds like 6% is kind of the floor for total company growth next year. I just want to make sure I heard that correctly."
— Travis Steed, Bank of America

A: "In terms of the floor, we're not setting guidance right now. So we're just giving a bit of an indicator of how we're starting to think about '27."
— Preston Wells, CFO

Assessment: The refusal is appropriate three months before formal guidance, with a CEO change in between. It also means the 6% figure circulating after the call belongs to an analyst, not to the company. We treat about 6% organic as our 2027 base case and do not treat it as a floor.

Sizing the One-Time Vascular Benefit

A late question asked management to quantify the China joint-venture milestone revenue that lifted U.S. Vascular. Management declined. It said only that the underlying Peripheral Vascular business performed in line with the September conference comments and much as it had in the second quarter.

Q: "And for Preston, earlier in the call, I think someone mentioned that there was a China JV revenue hit in the quarter. Just wondering if you might be able to quantify that for the Vascular business."
— Andrew Ranieri, TD Cowen

A: "We aren't calling it out specifically. What I would just say is underlying business, the ongoing underlying Peripheral Vascular and Vascular business is about in line with the comments that I made earlier in September and similar to the performance and impact that it had on the business in second quarter."
— Preston Wells, CFO

Assessment: The refusal matters because the item is large enough to change how the quarter reads. Taking the CFO's description at face value, it was worth $37M to $56M, or 60 to 90 bps of company organic growth. That is the second consecutive quarter in which a vascular number has had to be estimated from outside. It is also the quarter in which the same unit took a goodwill charge.

Why CMR and Why Not Buy It Outright

The CMR Surgical investment drew several questions, all asking whether a minority stake with an option is a half-measure. The CEO's answer was consistent: the plan is to own it, and the structure de-risks the U.S. commercial proof and the ongoing development cost before committing to full ownership.

Q: "And if you do decide to acquire it, how will you absorb the high cost of developing and marketing a competitive soft tissue robot?"
— Larry Biegelsen, Wells Fargo

A: "And to your question about risk, one of the reasons we're going about it in this manner is we want to derisk this and have our people do the commercialization in the U.S. as an investor, but not a full owner. Our hope and our plan is that we will eventually purchase this."
— Kevin Lobo, Chair and CEO

Assessment: The answer addresses the risk and not the cost. The question asked how Stryker would absorb development and marketing spend, and the reply described a structure that defers that spend rather than sizing it. That is reasonable at this stage. It also means a future acquisition decision comes with an operating cost that is not in any 2027 model today.

The Buyback and the Capital Priority List

A questioner asked whether the new $3.0B authorization signals a shift toward opportunistic buybacks. Management said the buyback is opportunistic and timed around deal flow, that M&A remains the first priority, and that cash generation supports both. The CEO added that several targets this year did not trade and may return.

Q: "Is this something that you would consider as more opportunistic in nature when you think about deploying capital towards buybacks?"
— Vijay Kumar, Evercore ISI

A: "But just to reiterate, and Nick talked a little bit about this in his prepared remarks, the capital allocation from our standpoint, the #1 priority remains M&A."
— Preston Wells, CFO

Assessment: Restating M&A as the first priority in the same quarter as a goodwill impairment on the largest recent acquisition is consistent with Stryker's history, and it is the right question for the incoming CEO. We would rather see the buyback used at today's price than another large deal in 2027. The balance sheet allows both.

What They're NOT Saying

1. The Peripheral Vascular impairment. A $293M goodwill charge appeared in the release as "goodwill impairment" with no business named. The 10-Q, filed the next morning, identifies Peripheral Vascular, cites lower forecast cash flows and a longer path to growth, and shows that a 100 bp rise in the discount rate would add $823M more. Neither management nor any analyst raised it on a call that discussed Peripheral Vascular repeatedly.
2. The size of the China joint-venture milestone. Management declined when asked directly. Neither the release nor the 10-Q mentions it. On our bounds it is $37M to $56M, enough to move organic growth by 60 to 90 bps.
3. How much capital revenue was taken out of the guide. "Mitigation of operational execution risk" is one of three named reasons for a $515M cut, and it was never sized. Knowing it would tell investors how much of the cut is deferred revenue and how much is lost.
4. The tariff benefit inside adjusted results, for a third quarter. Named again as the first driver of gross margin expansion and still unquantified. The 10-Q's quarterly gross profit bridge has no tariff line, so the benefit sits somewhere inside volume, mix or manufacturing cost.
5. The cost of selling Versius in the U.S. Stryker will run the U.S. sales organization for a soft-tissue robot from close. No estimate was given of the SG&A this adds to 2027, or of the eventual price of the option.
6. The growing list of special charges. The third quarter added $77M of Spinal Implants sale-related charges for a business sold in 2025 (nine-month total $128M), $37M for terminating sales relationships in certain countries ($124M year to date), and $29M of other charges ($71M). None has been explained on three calls, and no analyst has asked.
7. The inventory build. Inventories rose $437M since December to $5,747M. That is consistent with building against an order book, and also with orthopaedic implant inventory sitting in a slowing market. The split was not discussed.
8. Anything further on the cyber incident. The incident appeared on the call only as a cause of commercial distraction and in the closing claim that most of the lost business has been made back. There was no update on investigation, insurance recovery, litigation or regulatory exposure, seven months after the company told the SEC it was material to operations.

Market Reaction

• Pre-print setup: SYK closed at $311.75 on Thursday October 29. That was down 11.3% year to date against an S&P 500 up 12.8%, and down 15.6% over the trailing twelve months. It was up 11.8% over the trailing thirty days and 15.6% above the $269.75 closing low of September 24. The 52-week closing range entering the print was $269.75 to $387.46.
• Between the prints: The stock fell 8.8% to $276.43 on September 8, on 2.7 times its thirty-day average volume, after the CFO told an investor conference that the Peripheral Vascular supply problem would run into the fourth quarter and that hips had not seen the expected seasonal recovery. No guidance change was filed at the time.
• After-hours move: The release crossed after the close with the call at 4:30 p.m. ET. The stock fell about 8.5% immediately on the release and as much as 12% to 13% later in extended trading.
• Next-day session: SYK opened at $287.97, down 7.6%, traded between $282.18 and $299.17, and closed at $291.86, down 6.4% or $19.89.
• Volume: 6.4M shares against a 2.6M thirty-day average, or 2.5 times normal.
• Index and peer context: The S&P 500 fell 1.8% the same session, leaving about 4.6 points of relative underperformance. Orthopaedic peers Zimmer Biomet and Smith & Nephew fell 3.0% and 2.3%, and the leading surgical-robotics name fell 3.7%.
• Since our last note: From the $325.70 close on July 31 the stock is down 10.4%, against an S&P 500 up 1.2%. From our May initiation at $294.73 it is down 1.0%, against an index up 4.8%.

The session had two phases, and the difference between them is the main read. After hours, the stock fell as much as 13%, a reaction to a headline guide cut that looked like two points of growth gone. By the regular session's close, it had recovered about half of that. The market had already priced part of this in September, and the details of the call (capital demand intact, margins holding, EPS guide down only 1.2%) were better than the headline. A 6.4% decline on 2.5 times volume is still a decisive repricing. It is not a capitulation.

The pre-print setup explains the size. The stock rallied 15.6% off its September low in five weeks into the print, on the view that September had been the low point and the conference warning was the full extent of the damage. The print showed the damage was larger than the warning: a 205 bp cut, not a trim, plus an impairment in the same business. Investors who bought the October rally were buying a recovery the company then took out of its guide.

Peers fell on the same day, and the S&P fell 1.8%, so part of the move was market. But Stryker fell more than twice as much as the orthopaedic peers both on September 8 and on October 30. The market is pricing a company-specific execution discount, not just a sector slowdown. On the new 2026 guide midpoint, the July close was 21.9 times and today's close is 19.7 times, almost exactly the 19.6 times at our May initiation, at a price 1.0% lower.

Street Perspective

Debate: Is the hip and knee slowdown a market cycle or a Stryker problem?

Bull view: The bull case on the Street is that large-joint demand is cyclical and degenerative. Patients delaying surgery over deductibles come back, and every peer that reports will show the same slowdown. Stryker's share stall has specific, temporary causes, cyber and SAP, which end in 2027. The power hip impactor, Mako RPS and Triathlon Gold give the sales force new tools to resume share gains.

Bear view: The bear camp contends that Stryker has grown only in line with its market for several quarters, that its own CEO now names a product gap in hips, and that robotic differentiation is fading as competitors launch their own systems. On that view the market slowdown is hiding a structural loss of outgrowth, and the company is using one-off disruptions to explain a trend.

Our take: The bears have the stronger argument for now, and it is why we moved our robotics pillar to at-risk. The market slowdown is real and probably cyclical. But Stryker grew below a slowing market in the quarter while selling robots at a record pace, and that is not what a working flywheel looks like. Competitors' third-quarter results will help settle it. The SAP explanation should be testable by the second quarter of 2027.

Debate: Is the stock now cheap enough to own through the reset?

Bull view: The optimistic reading is that at under 18 times next year's earnings, the stock trades at a large discount to its own history for a company still growing EPS about 10%. Margins held through a severe revenue miss, a $3.0B buyback is coming, and the capital backlog is deferred, not lost. Every disruption this year has been temporary, and buying a high-quality compounder after a run of disappointments is how investors make money in medtech.

Bear view: The skeptical reading is that the multiple discount is earned. A franchise that has cut its guide, could not see its own orthopaedic order flow for two months and has impaired its largest recent acquisition does not get a historical multiple back until it proves it. 2027 estimates still look too high for a company pointing to the high end of slower markets, and a new CEO's first guide is the obvious moment to reset them.

Our take: We sit closer to the bears on timing and closer to the bulls on value. The stock is not expensive at 17.9 times our reduced 2027 estimate, and we would not sell it here. But the next catalyst is the January guide, and its risks are skewed downward. Estimate cuts usually beat a low multiple. The reasonable entry is after the reset, not before it.

Debate: Does the succession and the CMR deal change the strategy?

Bull view: Some sell-side desks argue the leadership change is a non-event that removes an overhang. The new CEO is a 27-year insider who ran Orthopaedics through its best share-gain years, and he inherits a clean balance sheet. The CMR option adds a credible soft-tissue robotics path at low upfront cost.

Bear view: The bear camp contends that the incoming CEO ran the business now losing share until ten months ago. The CMR deal also adds a cash-hungry adjacency against an entrenched incumbent, announced in the same month the company impaired its last large adjacency. Together, the bears argue, they point to a 2027 with higher spending and lower near-term returns.

Our take: We expect continuity in strategy and a conservative first guide, and we think the CMR structure is prudent: an option rather than a commitment. Neither changes the long-term franchise. Both raise the probability that 2027 margin expansion runs slower than the three-year commitment implies, while a new team funds commercial offense in orthopaedics and a new U.S. robot sales force. That is part of why our 2027 estimate moves down by more than the 2026 cut alone would justify.

Model Update & Valuation Framework

Where our estimate sits and why. We set 2026 at the guide midpoint, $14.85, down five cents from our July $14.90. Our July estimate already sat below the old guide, which is why our cut is smaller than the company's. The larger change is 2027. Our July $16.80 assumed a clean comparison base and a dense product year. We now assume about 6% organic, roughly 55 bps of margin expansion, a slightly higher tax rate, and about 381M diluted shares after further repurchases. That gives about $16.35, 10.1% growth on 2026.

Valuation, on consistent bases. At the $291.86 close the stock trades at 19.7 times the 2026 guide midpoint of $14.85, 17.9 times our 2027 estimate of about $16.35, and 21.4 times 2025 adjusted EPS of $13.63. On the same 2026 guide midpoint, the July close of $325.70 was 21.9 times. On our new 2027 estimate, the July close was 19.9 times. The stock has de-rated about two turns on both bases since our last note. At our May initiation it traded at 19.6 times the then-guide midpoint, nearly the same multiple it trades on today's lower midpoint.

Our July downside case, marked to market. In July we set a downside case near $295, about 20 times a failed-recovery 2026 of $14.60. The stock closed at $291.86 with 2026 EPS guided above that case. The difference is 2027: the failure turned out to be in the growth rate, not just the timing. We did not model that in July, and it is the reason the rating changes rather than the target alone.

Price target framework. Our new twelve-month target of $310 is 19 times our 2027 estimate of about $16.35. The multiple is three turns below what we used in July, and below Stryker's pre-2026 history. That reflects slower market growth in large joints, an unproven share recovery, and a Peripheral Vascular unit the company has just written down. From the $291.86 close that is 6.2% of price upside plus a dividend yield of about 1.2%, a total return in line with what we expect from the broad market.

Scenarios. Our upside case is $350, 21 times a 2027 of about $16.70. That requires the large-joint market to recover toward 4%, the capital backlog to ship in the first half, and RPS and Triathlon Gold to resume share gains. Management itself declined to forecast the first of those. Our downside case is $270, 17 times a 2027 of about $15.90. It requires only that the January guide reflects what management said on this call: slower markets, plus a new CEO funding commercial offense and a U.S. robot sales force. At 25%, 50% and 25% weights, the outcomes average about $310, close to the target.

What would change the rating. We would return to Outperform if the January 2027 guide holds organic growth at 6% or better with at least 50 bps of margin expansion while U.S. Knees return above 3% organic in the fourth quarter. We would also do so if the stock fell below about $265, roughly 16 times our 2027 estimate, with no new negative information. We would move to Underperform if the 2027 guide points below 5% organic, or if Peripheral Vascular takes a second impairment. If the January guide clears our upgrade bar but a second impairment arrives in the same print, we will treat the two as offsetting and hold the rating.

Thesis Scorecard Post-Earnings

The pillars below are the standing thesis established at initiation and carried through July, scored against this quarter. Bear-4 is new this quarter and is labelled as such. First, the July checklist, graded.

Overall: The thesis weakened materially. In July we said the October print was the whole test, and the test failed for a reason we had not weighted heavily: a slowdown in the orthopaedic base rather than a shortfall in capital catch-up. Two bull pillars lost status, one bear point materialized, a cyber tail reappeared in a new form, and a new large-joint risk opened as materializing. The margin pillar held and the capital-demand evidence is intact, which is why the 2027 estimate falls about 3% rather than more. What remains is a high-quality medtech franchise growing about 6% with 10% EPS growth, at a price that is fair rather than cheap until the January guide sets the 2027 base.

Action: Downgrade to Hold and stop adding. In July we wrote that if the third quarter did not show the capital backlog converting on schedule, the rating would go to Hold and the target with it. We are honouring that as written, with the target cut to $310 from $370. The stock has fallen to about the multiple at which we initiated, and we do not argue it is overvalued. Our case for waiting is the January guide, the first under a new CEO: our downside case needs only that guide to restate what management said on this call. We set the conditions for a return to Outperform above. We expect the January print to decide it.