Stryker (SYK): Beat, Raised The Floor, Fell 6.4% — The $375M Cyber Hole Nobody Refilled

Stryker Corporation (SYK) Q2 2026 — Net sales $6.589B (+9.4% reported, +9.0% organic). Adjusted EPS $3.69 vs $3.13 (+17.9%) against ~$3.49 expected — a 20c beat. Adjusted operating margin 27.4%, up 170bps. GAAP EPS $3.30, +44.1%. FY26 guidance NARROWED and the low end RAISED: organic 8.3–9.3% (from 8.0–9.5%) and adjusted EPS $14.95–$15.10 (from $14.90–$15.10). And the stock fell 6.4% the next session, from $348.04 to $325.70. Stryker beat by 20 cents, raised the bottom of both guidance ranges, expanded adjusted operating margin 170bps — and lost 6.4%. Two numbers explain it. First: the March 11 cyberattack shut Stryker's global manufacturing network for three weeks and, per the 8-K/A filed April 9, deferred or lost roughly $375M of sales. Q2 organic growth was 9.0% — Stryker's normal run rate — so essentially NONE of that $375M was recaptured; management confirmed the order backlog actually INCREASED. Second: the full-year guide now requires H2 reported growth of roughly 10.3–12.2% (last year's H2 was $13.228B; the range implies ~$14.6–14.8B) after the best quarter of the year grew 9.4%. Separately, the +44.1% GAAP EPS is flattered by a $158M ($0.34/share) reversal of 2025 tariff accruals — which is why cost of sales FELL 4.1% on +9.4% sales — against a comp quarter loaded with $55M of impairments and $65M of inventory step-up. THE CALL: HOLD (3/5, EXCELLENT BUSINESS, PRICED FOR THE RECOVERY) — base-case value ~$317 vs ~$325.7 today. KEY METRICS: - Net sales $6.589B vs $6.022B (+9.4% reported, +9.0% organic, essentially all unit volume). U.S. $4.959B (+8.9%); International $1.630B (+11.0%, +9.2% cc). MedSurg & Neurotechnology $3.625B (+9.7%, +9.2% organic); Orthopaedics $2.964B (+9.1%, +8.6% organic). Adjusted operating income $1.807B = 27.4% margin, +170bps from 25.7%. Adjusted EPS $3.69 (+17.9%) vs ~$3.49 consensus - THE CYBER MATH: March 11 attack (Handala, Iran-linked per press reports) shut global manufacturing ~3 weeks; the 8-K/A filed April 9 said material impact to Q1 and ~$375M of deferred or lost sales. Q1 2026 organic was +2.4% and sales ~$6.020B — at a normal ~9% Q1 would have been ~$6.4B, so the gap ties to the $375M. Q2 organic came in at 9.0%, the normal run-rate, and management said the ORDER BACKLOG INCREASED with record Mako installs — i.e. essentially none of the $375M was recaptured in Q2 - THE GUIDE MATH: FY2025 sales $25.116B, H1 2025 $11.888B, so H2 2025 = $13.228B. H1 2026 = $12.609B, up only 6.1%. FY26 organic guide of 8.3–9.3% implies H2 2026 of roughly $14.6–14.8B = +10.3% to +12.2%, after Q2 delivered 9.4%. On earnings: H1 adjusted EPS $6.29 vs $5.97 (+5.4% only), so the guide implies H2 of $8.66–$8.81 vs $7.66 = +13% to +15% - THE GAAP FLATTER: GAAP EPS $3.30 grew 44.1% vs adjusted +17.9%. The bridge includes a $158M 'Reversal of 2025 tariffs' worth $0.34/share that is SUBTRACTED to reach adjusted — it is why cost of sales fell 4.1% on +9.4% sales and why reported gross margin was 68.3% vs adjusted 66.0%. The Q2 2025 comp carried $65M inventory step-up, $78M acquisition costs and $55M impairments (GAAP op margin 18.5%). No cyberattack add-back exists anywhere in the reconciliation; 'other charges' inside structural optimization ran $70M in Q2 vs $12M a year ago - SEGMENT DETAIL & BALANCE SHEET: Medical $1,122M (+13.4%), Trauma & Extremities $1,072M (+11.9%, now the largest Ortho line), Endoscopy $1,004M (+11.7%), Instruments $1,003M (+9.3%), Ortho Tech $717M (+10.3%), Knees $693M (+8.4%, U.S. only +6.2%), Hips $479M (+2.9%), Vascular $496M (−0.7%, U.S. −6.7% on Inari disruption), U.S. Spinal Implants now $0. Cash $3.391B, LT debt $14.192B, net debt ~$10.7B, equity $23.988B. Goodwill + intangibles $25.326B = 53% of $47.930B total assets. H1 OCF $1.842B (+35%), capex $368M, FCF ~$1.474B; FY25 FCF was $4.283B - VALUATION: owner-earnings DCF on ~$4.8B of FY26 free cash flow growing 10% for five years then 6%, 2.5% terminal, discounted at 8.25% → PV of FCF $49.6B + terminal $83.5B = EV $133.1B, less $10.7B net debt, over 386.0M diluted shares = $317. At 7.5% it is $372; at 9% it is $275. Bear $219, bull $418, probability-weighted $318. Reverse DCF: at $325.70 (EV $136.4B) the market asks for $4.92B of FCF starting now, or 10.4% compounding for five years. Forward P/E 21.7x guided vs a decade in the mid-20s — the multiple looks cheap against an adjusted EPS that added back ~$0.75/yr of amortization (FY25 GAAP $8.40 vs adjusted $13.63, a 38% gap) What to watch: Bullish: Q3 organic growth above 11% in late October — the level that proves the cyber backlog is converting into shipped revenue rather than sitting in an order book; plus U.S. Vascular returning to growth as the Inari disruption clears and hips back above 4%. Bearish: Q3 organic below 9% (the $375M was permanently lost, not deferred), another quarter of U.S. Vascular declining, or adjusted operating margin failing to hold 27% while 'other charges' keep growing. Real buyer nearer ~$275 (~18x guided earnings). Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.