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Zimmer Biomet: Strong Q1, Integration Synergy Continues

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On May 23, 2016, we issued an updated research report on Zimmer Biomet Holdings, Inc. (ZBH - Free Report) – a major player in the musculoskeletal industry. The consolidated company formed post the merger of the legacy Zimmer Holdings and Biomet, recently reported better-than-expected first-quarter 2016 results with respect to both earnings and revenues.

Net synergies from the merger are currently anticipated to exceed $350 million in pre-tax by the end of the third year, post transaction. The company also expects the merger to contribute 95 cents to $1.05 to adjusted earnings per share with $135 million of pre-tax, net synergy savings in the first year of the acquisition. Moreover, the growth rate of adjusted earnings per share beyond 2015 is likely to accelerate.

Zimmer Biomet, post integration, will operate on a more comprehensive and diversified musculoskeletal portfolio, commanding 17% market share and attractive cross selling opportunities. The combined company will be supported by a research and development spending capability of approximately $360 million.

We are also encouraged about the gradually stabilizing global musculoskeletal market. The last three reported quarters witnessed gradual stability in this market with better-than-expected sales growth in certain geographies, banking on improved procedural volume. This was driven by favorable demographics and growing utilization of musculoskeletal healthcare in emerging markets and under-penetrated developed markets.

However, macroeconomic uncertainties, pricing pressure and unfavorable currency adversely impacted sales in the first quarter. As expected, currency headwinds continued as a major threat, accounting for the sluggish top line worldwide. The huge margin contraction also posed hurdles. In addition, intense competition in the orthopedic market continues to raise concerns.

The stock currently carries a Zacks Rank #3 (Hold).

Key Picks in the Sector

Some better-ranked medical products stocks are Boston Scientific Corporation (BSX - Free Report) , ICU Medical, Inc. (ICUI - Free Report) and NuVasive, Inc. . All the three stocks carry a Zacks Rank #2 (Buy).

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