Phase Space AI

Model Notes

Stryker [SYK]

Stryker Corporation [SYK] — Financial Model Notes (Task 2)

Workbook: SYK_Financial_Model.xlsx · Built: 2026-07-28 · Six tabs, live formulas throughout

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Structure

Formatting convention (standing user preference): the top line of each statement block carries the $; rows beneath are plain. Blue = hardcoded input, black = formula.

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Verification — how it was actually checked

Excel was unavailable. A concurrent agent held the Microsoft Excel application with another ticker's workbook open; closing it (as the standard verification recipe requires) would have destroyed that agent's work. The workbook was instead verified with the formulas Python package — an independent implementation that re-parses and re-evaluates every formula in the file from scratch. This is arguably a stronger check than an Excel readback, because it does not share Excel's evaluation engine.

That check caught a real bug. Scenarios & Comps!C28 (the Valuation Criteria flip-point cell) had a mismatched parenthesis; the engine refused to compile the workbook and named the cell. Excel would have shown a dialog. The cell was repaired and the workbook recompiled clean. A second pass found and fixed two cells referencing Assumptions!$C$50 (share count) where $C$49 (share price) was intended.

Tie-out to the filed statements (v1.4.2 requirement — internal consistency is not enough)

Every FY2025A line reproduces the filed 10-K figure exactly:

One line is derived and is flagged rather than hidden. "Other income, net" of $207m is a plug (4,514 − 4,889 + 582). The filed NonoperatingIncomeExpense tag reads $232m; the $25m difference is not separately tagged in the SEC's company-facts dataset. The plug ties the statement to the filed pretax income, which is the authoritative figure.

Balance check

FY2026E–FY2030E: 0.0 / 0.0 / −0.0 / 0.0 / 0.0. The sheet balances and ties. Per the TWST lesson recorded in the skill, the balance check alone would prove nothing; it is the tie-out above that does the work.

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Verified scenario outputs (read back after recalculation)

Other verified outputs: WACC 7.53%; terminal value 82.6% of enterprise value; reverse-DCF implied perpetual FCF growth 3.22%; Valuation Criteria net E[R] +9.55%; flip point P(Bear) = 38.2%; break-even Base exit multiple 20.03x; E[R] holding the multiple at today's 20.73x +6.42%.

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Key modelling decisions, and why

1. FY2026 revenue is built off Q1 actual plus an explicit cyber-recovery input

FY2026E revenue = 6,020 (Q1 2026 actual) + 19,250 (Q2–Q4 2025 base) × (1 + organic + FX + net M&A) + cyber recovery

The cyber recovery is its own input line (Bear $0m / Base $225m / Bull $450m) rather than being buried in the growth rate. This matters because it is the single largest uncertainty in FY2026 and the entire house-vs-Street gap comes from it — consensus embeds essentially none of it. Making it a separate driver means Exhibit 29's bridge is honest and the sensitivity is visible.

2. Adjusted and GAAP earnings are modelled separately, not one from the other

Stryker's adjusted-vs-GAAP EPS gap has ranged from 28% to 77% of GAAP over six years and re-widened from 28% (FY2023) to 62% (FY2025). Deriving one from the other with a fixed spread would have hidden that. Both are built from their own margin and tax assumptions, and the gap is a computed row.

Note the FY2026 crossover: GAAP EPS is modelled up +24% while adjusted EPS is up only +11%, because FY2025 carried heavy Inari acquisition and integration charges that roll off. Q1-2026 already showed this — reported EPS +14.2% against adjusted EPS −8.5%.

3. The balance sheet plugs into "Other non-current assets", not into cash

Cash is the honest cash-flow plug (prior cash + net change in cash). The residual that makes the sheet balance goes into other non-current assets — deferred tax, equity investments, right-of-use assets — which is where a real modelling residual would actually sit. Plugging cash and forcing a balance would have double-counted. The line is relabelled in the workbook to say so.

4. Acquisitions are modelled at $1.5bn/yr, not zero

Stryker spent $14.9bn on M&A over 2019-2025. Modelling zero future acquisitions would produce a company that does not exist. $1.5bn/yr is roughly the seven-year median ex-Wright/Inari, allocated 70% goodwill / 28% intangibles / 2% net tangible — consistent with the observed Inari allocation (95% of the $4.96bn went to goodwill and intangibles). This is why modelled tangible book value only turns positive around FY2029.

5. GAAP EBIT margin, not adjusted, drives the DCF

The DCF uses GAAP operating income with amortisation added back inside D&A — the standard treatment. Using adjusted operating income would capitalise the add-backs twice and would embed the assumption that a "structural optimization" charge now in its fourteenth consecutive quarter is genuinely non-recurring. It is not.

6. Beta is a judgement, and it is disclosed as one

Measured beta versus SPY is 0.60 (3-year) and 0.23 (252-day) from Alpaca daily bars. The 252-day figure is implausibly low and reflects SYK trading on idiosyncratic news (the cyber incident) rather than market factors. 0.75 is used — above both measured values, deliberately conservative, and flagged in the Assumptions tab as judgement rather than measurement. At the measured 0.60, WACC falls to ~7.03% and the DCF rises to roughly $370.

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Known limitations of the model

1. No segment-level forecast. Stryker re-segmented three times in five quarters (2024Q4 Spine, 2025Q1 Neurovascular→Vascular, 2026Q1 Ortho Tech). No consistent five-year segment series exists, so the model is built at the consolidated level with a segment split shown only for actuals. This is a genuine loss of resolution and is a direct consequence of the company's disclosure choices.
2. Mako cannot be modelled separately. It has never been disclosed as a line item, and from FY2026 the "Other Orthopaedics" line that permitted inference no longer exists.
3. The cyber revenue impact is my estimate (~$440m), not a disclosed figure. It is derived from the filed organic-growth bridge and is the largest single estimate in the workbook.
4. Peer NTM EPS in the comps table are estimates, not sourced from a consensus feed. Only SYK's own consensus is sourced (Alpha Vantage, 26 analysts). The peer P/E column should be read as indicative.
5. The DCF is 82.6% terminal value. The point estimate is therefore not independent evidence; the reverse DCF is the more informative construction and is reported as such.
6. Q4 quarterly figures are not separately XBRL-tagged for several income-statement lines (R&D, SG&A, operating income), so quarterly charts show gaps rather than derived values.