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Zimmer Biomet (ZBH) Shows Strong Core Growth Amid Weak EMEA

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On Mar 17, we issued an updated research report on Zimmer Biomet Holdings, Inc. (ZBH - Free Report) . The company continues to gain market share in the Asia Pacific, Europe, the Middle East and Africa (EMEA) regions. However, pricing continues to be a major concern. The company currently has a Zacks Rank #3 (Hold).

Zimmer Biomet ended the fourth quarter of 2020 with better-than-expected revenues and earnings. Its core business remained strong through this period.

According to Zimmer Biomet management, the planned spin-off of its Spine and Dental business is part of its third phase of ongoing transformation, which includes changing the complexion of the business through active portfolio management in order to accelerate growth and drive value creation. Per management, the transaction is an important step in Zimmer Biomet’s transition into a more streamlined business, with a focus on greater and more optimized resource allocation toward innovation in profitable core businesses.

The company also noted that its combined Spine, Dental and bone healing business has a gross margin profile, which is a little below the overall company average. As a result, the spinoff is also going to help in improving the company average.

Zimmer Biomet should benefit from favorable long-term trends, driven by obesity, wear and tear of joints from more active lifestyles, an uptick in the emerging markets, new material technologies, advancements in the surgical techniques and proven clinical benefits of joint-replacement procedures.

On the flip side, the company ended the fourth quarter with a year-over-year decline in sales across most of its operating segments and geographies. It noted that continued pressure from the COVID-19 pandemic slowed the recovery of elective procedures in the fourth quarter.

Per Zimmer Biomet, COVID-19 remained a challenge in the fourth quarter, with a significant surge in new cases. Even in first-quarter 2021, while the EMEA is seeing lockdown measures to a far lesser extent, the outbreak is still impacting the Asia Pacific. Also, there is increased pressure on its business in the Americas as a result of surges in the outbreak.

This has resulted in a decline in elective procedures through the fourth quarter, with it getting severe at the end of December. The company expects the pressure to continue through the first quarter, impacting all three regions. Zimmer Biomet currently expects the first quarter to be more challenging than the fourth quarter.

Year to date, Zimmer Biomet has underperformed its industry. The stock has gained 4.8% compared to the 5.3% rise of the industry.

Key Picks

Currently, Zimmer Biomet carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are Hologic, Inc. (HOLX - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Abbott Laboratories (ABT - Free Report) .

Hologic’s long-term earnings growth rate is estimated at 15.4%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX’s long-term earnings growth rate is estimated at 15.8%. It currently carries a Zacks Rank #2.

Abbott’s long-term earnings growth rate is estimated at 14.1%. The company presently carries a Zacks Rank #2.

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