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Zimmer Biomet (ZBH) Sees Business Recovery, Global Growth

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Zimmer Biomet's (ZBH - Free Report) strategic acquisitions, focus on emerging markets to drive growth, strong balance sheet position and stabilizing market trend bolster our confidence in this stock. Yet, factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations have been adversely impacting Zimmer Biomet's business. The stock currently carries a Zacks Rank #2 (Buy).

In the past year, Zimmer Biomet has outperformed its industry. The stock has lost 24.6% compared with the 45.6% fall of the industry.

Zimmer Biomet, in spite of a difficult macro-economic scenario in the second quarter, posted better-than-expected earnings and revenues.

Each of the company’s geographic segments and product divisions, barring “other” recorded year-over-year sales growth at CER. Revenues were driven by continued execution along with strong COVID recovery across most markets. According to the company, strong procedure volume recovery extended from the first quarter, especially as Zimmer Biomet moved into April and May, with a moderation of recovery in June. U.S. sales grew 1.3%, driven by a strong recovery in execution as COVID cases subsided and elective procedures returned, especially in knee and hips.

In Q2, within the Knees business, the 11.2% growth was driven majorly by strong knee procedure recovery across most regions. Within the Hips business, easier comparisons outside the United States along with strong international procedure recovery drove growth. Zimmer Biomet raised its 2022 financial guidance, expecting better-than-expected COVID recovery.

A raised 2022 guidance indicates that this improving trend might continue for the rest of the year.

Moreover, Zimmer Biomet’s recently completed spin-off of the non-core dental and spine business is expected to prove strategic. The company earlier noted that, its combined Spine, Dental and bone healing business had a gross margin profile that's a little bit below the overall company average. As a result, the spinoff is also going to help in improving the company average.

On the flip side, Zimmer Biomet earlier noted that China volume-based procurement (VBP) is expected to be about neutral to overall revenue growth for full-year 2022. In Q2, the company stated that China is currently performing largely as projected.

In the quarter, the S.E.T. category increased a mere 0.1%, impacted by a year-over-year tough comparable, expected pressure in trauma due to VBP implementation, as well as an expected pressure in restorative therapies due to a reimbursement shift for Gel-One product. Further, the ”Other” category declined 6.1% due to tough comparable and expected lower capital sales related to a higher mix of ROSA placement versus upfront sales in the quarter.

Added to this, a contraction in the company’s gross margins is concerning. A significant reduction in R&D expenses too increases concern about pipeline-related progress.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Quest Diagnostics Incorporated (DGX - Free Report) , Becton, Dickinson and Company (BDX - Free Report) , popularly known as BD, and Alkermes plc (ALKS - Free Report) .

Quest Diagnostics, carrying a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 6.9% compared with the industry’s 3.8%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

BD, having a Zacks Rank #2, reported third-quarter fiscal 2022 adjusted EPS of $2.66, which beat the Zacks Consensus Estimate by 6.8%. Revenues of $4.64 billion outpaced the consensus mark by 4%.

BD has an estimated long-term growth rate of 6.6%. BDX’s earnings surpassed estimates in all the trailing four quarters, the average being 11.9%.

Alkermes reported second-quarter 2022 adjusted EPS of 6 cents, which surpassed the Zacks Consensus Estimate by 50%. Second-quarter revenues of $276.2 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Alkermes has an estimated long-term growth rate of 24.9%. ALKS’ earnings surpassed estimates in all the trailing four quarters, the average being 325.5%.