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S&P revises outlook on Stryker to negative

S&P Global Ratings affirmed its A issuer credit rating on Stryker Corp. but revised the outlook on the rating to negative from stable, citing higher debt from acquisitions.

The Kalamazoo, Mich.-based medical device maker has spent about $2.6 billion on acquisitions this year, higher than the rating agency's forecast of less than $1 billion for 2018.

These include the recent acquisition of HyperBranch Medical Technology Inc. for $220 million, preceded by a $1.4 billion deal to buy K2M Group Holdings Inc. and $662 million Entellus Medical Inc. purchase.

S&P said Stryker's net debt leverage is expected to be about 2.2x for 2018 and about 2x for 2019, which is above the 1.5x to 2x range associated with an A rating.

Moody's in August deemed the K2M Group acquisition to be credit negative, citing an increase in financial leverage.

S&P said the benefits from the acquisitions regarding scale and diversification were modest compared to the financial risk posed by higher debt.

The agency also believes the company's financial policy is shifting towards acquisition-driven growth, thus giving lower priority to keeping long-term leverage below 2x.

S&P said its credit rating stems from Stryker's leading market position in various high-margin product markets as well as projections to generate at least $1.5 billion in annual free operating cash flow.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.