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Here's Why You Should Retain Zimmer Biomet (ZBH) Stock For Now

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) has been gaining from the continued uptake of its ROSA robotics line worldwide. The company’s planned spin-off of the non-core dental and spine business seems strategic. The limited launch of Persona iQ in the fourth quarter buoys optimism. However, a dismal sales performance and consistent pricing pressure raise apprehension.

Over the past year, the Zacks Rank #3 (Hold) stock has declined 27% compared with a 20.4% fall of the industry and a 5.5% rise of the S&P 500.

The renowned musculoskeletal healthcare company has a market capitalization of $26.34 billion. The company’s long-term projected growth of 5.8% compares with the industry’s growth projection of 16.6% and the S&P 500’s expectation of 11% growth.

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Let’s delve deeper.

Factors At Play

Dental and Spine Spin-Off to Bode Well: Zimmer Biomet is progressing with the planned spin-off procedure of the Dental & Spine arm. The transaction is expected to close on Mar 1, 2022. This planned spin-off is part of the company’s third phase of ongoing transformation. It will help Zimmer Biomet to focus on greater and more optimized resource allocation toward innovation in profitable core businesses, where it sees attractive markets with opportunities to become market leaders.

The company noted that its combined Spine, Dental and bone healing business has a gross margin profile that's a little bit below the overall company average. As a result, the spin-off will also help improve the company average.

Business Recovery Continues: Despite the near-term pressure, Zimmer Biomet is putting efforts into business recovery in 2022. The company expects to see 2022 procedural volumes consistent with 2021. The longer-term financial profile of the company is driving continued investment into priority areas of the business. Additionally, Zimmer Biomet’s investments in R&D and key commercial initiatives will increase throughout the year.

Q4 Upsides: Zimmer Biomet was able to drive continued strong demand and momentum for ROSA robotics line globally, in spite of a complex business scenario. For the entire year of 2021, the company more than doubled the number of installed ROSAs versus its cumulative total at the end of 2020. As a major milestone achieved, in the fourth quarter, those installed ROSAs allowed Zimmer Biomet to reach 10% in total knee procedure penetration in the United States for the first time as a company.

The team also delivered a successful limited launch of Persona iQ— the world's first and only smart knee.

Downsides

Q4 Sales & Earnings Scenario Dull:  Zimmer Biomet’s fourth-quarter top-and-bottom-line results missed the Zacks Consensus Estimate. Per the company, net sales and earnings metrics were negatively impacted by China volume-based procurement (VBP) in Knees, Hips and S.E.T. product categories due to a combination of variables in advance of VBP implementation.

Pricing Pressure Persists: Zimmer Biomet's top-line growth in the fourth quarter was partially offset by continued pricing pressure, mostly in the Americas and Europe operating segments. We are concerned about the pricing scenario as it will be affected by cost-containment efforts by governmental healthcare, local hospitals and health systems.

Forex Woes: Zimmer Biomet records a significant portion its sales from the international market. This makes it highly exposed to currency fluctuations.

Estimate Trend

Over the past 60 days, the Zacks Consensus Estimate for Zimmer Biomet’s 2022 earnings has moved 0.9% down to $6.54.

The Zacks Consensus Estimate for 2022 revenues is pegged at $6.73 billion, suggesting a 14.1% fall from the 2021 reported number.

Key Picks

A few better-ranked stocks in the broader medical space are Owens & Minor, Inc. (OMI - Free Report) , Abiomed, Inc. (ABMD - Free Report) and Henry Schein, Inc. (HSIC - Free Report) .

Owens & Minor has a long-term earnings growth rate of 8.8%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It currently flaunts a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens & Minor has outperformed the industry over the past year. OMI has gained 16.2% against a 20.4% industry decline in the said period.

Abiomed has an estimated long-term growth rate of 20%. Abiomed’s earnings surpassed estimates in the trailing four quarters, the average surprise being 9.2%. It currently carries a Zacks Rank #2 (Buy).

Abiomed has underperformed the industry over the past year. ABMD has lost 7.1% against the industry’s 6.1% fall over the past year.

Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently sports a Zacks Rank #2.

Henry Schein has outperformed the industry over the past year. HSIC has gained 29.3% compared with the industry’s 5.1 % rise over the past year.