Orthopedic reconstructive products manufacturer, Zimmer Biomet Holdings, Inc. (ZBH Quick QuoteZBH - Free Report) is slated to report its second-quarter 2016 financial numbers on Jul 28, before the opening bell. 

Last quarter, the company had delivered a positive earnings surprise of 3.63%. Encouragingly, Zimmer Biomet’s earnings have outpaced the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 3.45%. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that the company is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Zimmer Biomet has an Earnings ESP of +1.02%. That is because the Most Accurate estimate is $2.00 while the Zacks Consensus Estimate is pegged lower at $1.93. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Zimmer Biomet has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Zimmer Biomet’s Zacks Rank #2 and +1.02% ESP makes us reasonably certain of a positive earnings beat.

What's Driving the Better-than-Expected Earnings?

During the last reported quarter, Zimmer Biomet witnessed severe revenue-related headwinds in its dental division caused by a supply disruption linked with a voluntary field action in response to a packaging issue. However, we are encouraged by the company’s commitment to find solutions for the issue by the end of the second quarter. Hence, we expect to see a rebound in the company’s dental revenue down the line which may commence from the second quarter itself.

Overall, the market assumption for 2016 remains quite favorable for Zimmer Biomet. According to the company, the musculoskeletal market is expected to grow approximately 3% in 2016 with global market conditions remaining stable when compared to full-year 2015.

We are looking forward to Zimmer Biomet’s assurance of revenue acceleration across multiple product categories through portfolio expansion throughout 2016 with strategic internal and external development opportunities. Previously the company projected planned commercialization schedule of over 50 new product launches in 2016, of which around 12 were completed in the first quarter.

Additionally, starting from the first quarter through 2016, Zimmer Biomet expects to realize increasing sales-force productivity, driven by added stability and specialization in its global sales organizations, and aided by benefits of its medical education and training programs.

In the second-quarter 2016, the company projects revenue growth rate of 3% to 4% at constant exchange rate. Foreign currency translation is expected to reduce the company’s reported second-quarter revenues by 1%. Second-quarter adjusted EPS is envisioned between $1.93 and $1.98.

Further, with a strong cash balance, Zimmer Biomet intends to return half of its net income to its stockholders through annual share repurchase programs and target suitable acquisitions in the musculoskeletal space. A step to attract more investors to the stock.

Other Stocks to Consider

Here are some other companies you may want to consider as our proven model shows they too have the right combination of elements to post an earnings beat this quarter: 

Bristol-Myers Squibb Company (BMY Quick QuoteBMY - Free Report) has an Earnings ESP of +1.49% and a Zacks Rank #1.

Teligent Inc. (TLGT Quick QuoteTLGT - Free Report) has an Earnings ESP of +100% and a Zacks Rank #2.

GW Pharmaceuticals plc has an Earnings ESP of +6.36% and a Zacks Rank #2.

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