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Zimmer Biomet's (ZBH) Recovery to Continue Despite Pandemic

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On May 7, 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).

In the past three months, Zimmer Biomet has outperformed its industry. The stock has gained 8.6% as against 0.3% dip of the industry.

Despite challenging market conditions in the form of pricing pressure, the company witnessed gradual stability in the global musculoskeletal market with better-than-expected revenue and earnings growth in the first quarter of 2021. Core hip and S.E.T. business registered growth in the reported quarter. Operating margin expansion was another upside.

For 2021, reported revenue growth expectation of 14% to 17% over 2020 with an expected foreign exchange tailwind of approximately 150 basis points buoys optimism.

Moreover, Zimmer Biomet’s spin-off decision of the non-core dental and spine business is expected to prove strategic. This planned spin-off is part of the company’s 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.

On the flip side, pricing continues to remain a major headwind for Zimmer Biomet. The company's top-line growth in the reported quarter was partially offset by continued pricing pressure, mostly in the Americas and Europe operating segments. We remain concerned about the pricing scenario as it will be affected by cost containment efforts by governmental healthcare, local hospitals and health systems. In 2020, pricing pressure was negative 2.4%.

However, despite the near-term pressure, Zimmer Biomet is confident about market recovery in 2021. Further, the longer-term financial profile of the company is driving continued investment into priority areas of the business. The company currently expects to see seasonality in revenues in 2021 that has already began to resemble pre-COVID sales trend. Additionally, Zimmer Biomet intends to increase investments in R&D and key commercial initiatives throughout the year. Despite that, the company expects operating margins to improve by 2021 end, banking on robust revenue growth.

Key Picks

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

Some better-ranked stocks in the broader medical space are Owens & Minor, Inc. (OMI - Free Report) , Boston Scientific Corporation (BSX - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .

Owens & Minor’s long-term expected earnings growth rate is 15.1%. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific has a projected long-term earnings growth rate of 9.3%. It currently carries a Zacks Rank #2 (Buy).

West Pharmaceutical’s long-term projected earnings growth rate is pegged at 22.6%. The company too carries a Zacks Rank #2.

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