SummaryThe new year is off to a good start in the U.S. medical device industry and shows no signs of slowing down in 2008. Strong demand for medical equipment and a growing aging population have helped Shares of numerous medical device manufacturers outperformed the market in the second half of 2007. We remain convinced that, overall, the medical device industry is highly profitable and has high barriers to entry. Additionally, during times of economic uncertainty, medical equipment has seen continued gains. We are evaluating two companies in the medical device industry: Stryker Corp. (NYSE:SYK) and Medtronic Inc. (NYSE:MDT). Our main goal is to analyze which company could make a better investment. Stryker Corp (NYSE: SYK) We recommend a Buy at a price target of: $78.90 Market data as of: 07/18/2007 STOCK PRICE: $64.52 ANNUAL DIVIDEND: $0.33 MARKET CAP: $ 26.58b Price per gain: $ 25.34 (Trailing 12Mos) Price to profit: $ 25.69 (Avanti 12mos) Intensive year closed at 31/12/2004 2005 2006 2007 2007 Net Total ACTS $ 4,262,300 $ 4,608,900 $ 5,147.2 00 $ 6,000,500 Sales Growth 17.57% 8.13% 11.68% 16.58% Operating Income $ 720,400 $ 998,800 $ 1,074,300 $ 1,307,300 Operating Margin 16.90% 21.67% 20.87% 21.79% Net Profit $465,700 $675,200 $777,700 $1,017,400 Net Margin 10.93% 14.65% 15.11% 16.96%Profit Growth 2.69% 44.99% 15, 18% 30.82%Medtronic, inc. (NYSE: MDT) We recommend a Buy at a price target of: $56.50 Market data as of: 07/18/2007 STOCK PRICE: $53.43 ANNUAL DIVIDEND: $0.19 MARKET CAPITAL: $60, 12B PRICE TO EARNINGS: $27.37 (TRAILING 12MOS) PRICE TO EARNINGS: $19.73 (FORWARD 12MOS)FULL YEAR ENDED 04/25/2004 2005 2006 2007Total Net Sales $10,054,600 $11,292,000 12 .299. 000 $13,515,000 Sales Growth 10.65% 12.31% 8.9 2% 9.89% Operating Income $2,788,900 $3,240,600 $3,698,989 $3,212,000 Operating Margin 27.74% 28 .70% 30.08% 23.77% Net Profit $1,803,900 $2,546,700 $2,802,000 $2,231,000 Net Margin 17.94% 22.55% 22.78% 16.5% Profit Growth -7.93% 41.18% 10.02% -20.38% INVESTMENT THESIS Tryker Corp is more attractive than Medtronic over the next 12-18 months. Stryker reported that its net income increased 31 percent to $1.02 billion, in 2007, compared to $777.7 million in 2006. The increase in earnings was due to the weaker dollar, while demand internal for its orthopedic implants and MedSurg equipment has helped increase revenue. . The increase was also due to strong international sales of orthopedic implants and medical equipment. The Company's outlook for 2008 continues to be optimistic regarding underlying growth rates in orthopedic procedures and sales growth rates across the Company's broad range of products in orthopedics and other medical specialties. , despite the possibility of increased pricing pressure in some markets. The Company expects diluted net earnings per share for 2008 to be approximately $2.88, representing a 22% increase over diluted net earnings per share from continuing operations of $2.37 for the year ended on December 31, 2007. Financial forecasts for 2008 include a steady net sales increase of between 11% and 13% as a result of growth in shipments of orthopedic implants and MedSurg equipment. If foreign currency exchange rates remain close to December 31, 2007 levels, the Company expects a favorable impact on net sales of approximately 2.5% to 3% in the first quarter of 2008 and a favorable impact on net sales net earnings between approximately 1% and approximately 3% in the first quarter of 2008. 1.