Stryker Leaves Obstacles Behind

Tickers in this article: ABT JNJ MDT STJ SYK

NEW YORK ( TheStreet) -- There was a point when the drama associated with Stryker's legal battles and products recalls made me question if the stock was worth the trouble.

In an effort to start fresh, the company is under new leadership. While a new vision can certainly help change the culture of the company, the new regime -- as competent as they may be -- not only must continue to do battle with the likes of Johnson & Johnson and Medtronic , but also adjust to law changes imposed by the Affordable Care Act (Obamacare) that could impact performance. On top of all of that, the stock was expensive.

Following the company's third-quarter earnings report, during which Stryker posted strong 7% year-over-year growth (constant currency), it seems that Stryker's stock prices is the only thing that has not changed, given that shares are at their 52-week highs. In impressive fashion, management has done just enough to put most of the company's concerns to rest.

With the Reconstructive business posting better than 9% year-over-year growth, it was clear that despite the concerns related to product recalls and possible pricing pressure, Stryker had no intention on ceding its market lead to Johnson & Johnson. Leading the way was Stryker's strong 20% year-over-year growth in Trauma and Extremities.

It wasn't all great news, though. While it's encouraging that Stryker's hip and knee businesses are growing in mid single-digits, I can't see much differentiation at this point between Stryker's performance and those of Johnson & Johnson and Abbott Labs . What's more, ahead of the report, it was evident that Stryker's MedSurg business, which includes instruments, endoscopy and medical devices, had become stagnant.

Though I complained about the company's 4% year-over-year growth in the July quarter, this time the numbers were even less inspiring, growing at just 2.6% primarily due to a 2% decline in Instruments. I'm willing to give Stryker the benefit of the doubt here for its better-than-expected operational performance, which posted a 0.6% jump in gross margin. Not to mention, the leadership team is still getting adjusted.

Plus, unlike St. Jude , which missed the Street's gross margin estimates by more than 60 basis points, Stryker's performance suggests that even with the product recalls, consumers were not hesitant with their purchases, leading to a 4% increase in operating income.

I've read where bears have argued that Stryker's 4% growth in operating income pales in comparison to the 12% surge by Abbott Labs. Even so, to the extent that management can continue to put these fears to rest while also managing legal costs, Stryker's stock may yet have more room to climb, as expensive as these shares already are.

It's worth nothing that another piece of uncertainty has been removed. In an issue that dated as far back as 2003, Stryker was accused and charged by the Securities and Exchange Commission with making improper payments from its subsidiaries to health care and government officials in Mexico, Europe and South America in order to secure business.