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Here's Why You Should Hold On to Zimmer Biomet (ZBH) Stock Now

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Zimmer Biomet (ZBH - Free Report) has been gaining from the gradual stabilization of the global musculoskeletal market. The Dental and Spine Spin-Off plan bodes well for the company. The better-than-expected results for the first quarter and bullish 2021 guidance provided by the company buoy optimism as well. However, stiff competition and pricing continue to remain major headwinds.

Over the past six months, this Zacks Rank #3 (Hold) stock has gained 12.2% versus 6.4% growth of the industry and 16% rise of the S&P 500.

The renowned musculoskeletal healthcare provider has a market capitalization of $34.9 billion. The company projects 8.9% growth for the next five years and expects to maintain strong segmental performance. Further, it delivered an earnings surprise of 48.75%, on average, over the trailing four quarters.

Let’s delve deeper.

Key Growth Catalysts

Solid Q1 Results: Despite challenging market conditions in the form of pricing pressure, the company witnessed gradual stability in the global musculoskeletal market with better-than-expected revenues 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. The current full-year guidance and strong revenue growth expectations buoy optimism as well.

Gradually Stabilizing Market: Zimmer Biomet has been witnessing gradual stability in the global musculoskeletal market over the last few quarters with better-than-expected sales growth in certain geographies on improved procedural volume. This was driven by favorable demographics and growing utilization of musculoskeletal healthcare in emerging markets and under-penetrated developed markets. With its expectation that the market will stabilize further, Zimmer Biomet is confident about its differentiated portfolio that comprises both premium and value-based offerings.

Dental and Spine Spin-Off Plan Bodes Well: According to Zimmer Biomet management, the planned spin-off of its Spine and Dental business 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. Per management, for Zimmer Biomet, the transaction is an important step in the company’s transition into a more streamlined organization with focus on greater and more optimized resource allocation toward innovation in core businesses that are profitable and where it sees attractive markets with opportunities to become market leaders.

Downsides

Pricing Pressure Persists: Pricing continues to be 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.

Competitive Landscape: The presence of a large number of players has made the medical devices market intensely competitive. The orthopedic industry in particular is highly competitive with the presence of players like Stryker, Johnson & Johnson's DePuy, Smith & Nephew and Medtronic.

Estimate Trend

Zimmer Biomet has been witnessing a positive estimate revision trend for 2021. Over the past 30 days, the Zacks Consensus Estimate for its earnings per share (EPS) has moved 2.1% north to $7.81.

The Zacks Consensus Estimate for its second-quarter fiscal 2021 EPS is pegged at $1.83, suggesting a stupendous surge of 3560% from the year-ago reported number.

Key Picks

A few better-ranked stocks from the broader medical space are National Vision Holdings, Inc. (EYE - Free Report) , Owens & Minor, Inc. (OMI - Free Report) and Envista Holdings Corporation (NVST - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

National Vision has a projected long-term earnings growth rate of 23%.

Owens & Minor has a projected long-term earnings growth rate of 15%.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

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