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Here's Why You Should Retain Zimmer Biomet (ZBH) for Now
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Zimmer Biomet (ZBH - Free Report) is well-poised for growth in the coming quarters, backed by the business rebound since the past few quarters despite macroeconomic challenges. The Spine and Dental business spin-off is part of the company’s portfolio transformation focused on getting more revenues in faster growth markets.
Of late, Zimmer Biomet has been strengthening its foothold within emerging markets that provide long-term opportunities for growth. However, escalated expenses and a competitive landscape pose challenges for ZBH.
In the past year, this Zacks Rank #1 (Strong Buy) stock has increased 35.8% against the 21.6% fall of the industry and the 16.5% rise of the S&P 500 composite.
The leading musculoskeletal healthcare company has a market capitalization of $30.37 billion. The company has an earnings yield of 5.12% against the industry’s -2.25%. Zimmer Biomet surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 7.38%.
Let’s delve deeper.
Tailwinds
Business Recovery Continues: In the last reported quarter, ZBH’s domestic sales were well ahead of the company’s expectations, with elective procedure volumes recovering and procedure cancellation rates returning to pre-pandemic levels. Internationally, sales across the EMEA region were driven by faster recovery and strength across developed and emerging markets.
Image Source: Zacks Investment Research
In terms of product category, global knees witnessed a strong uptake across the full Persona product portfolio and sales traction in all regions. Global hips’ performance demonstrated continued traction across the Avenir and G7 product lines, along with the ongoing uptake of Rosa hip. The S.E.T. (sports extremities and trauma)category was impacted by the continued strong performance across its key focus areas of CMFT, sports medicines and upper extremities.
Dental and Spine Spin-off to Bode Well: Zimmer Biomet recently completed its planned spin-off procedure of the dental & spine arm as part of the company’s third phase of the ongoing transformation.
The transaction represents an important step in ZBH’s transition to a more streamlined company with a greater focus on optimized resource allocation, including innovations in profitable core businesses and attractive markets with opportunities to become market leaders.
A Focus on Emerging Markets: The company’s strategic investments in emerging markets over the past several quarters to improve operational and sales performance are yielding results. Following the integration of Biomet, the S.E.T business is expected to move forward, due to a strong presence in these regions with an extended portfolio that includes upper and lower joints.
Within emerging markets, we note that the strength of the Asia Pacific market has continued to drive strong revenue growth so far. ZBH is expected to continue with this trend post the COVID-19 mayhem, banking on a cadence of product launches and strong customer adoptions.
Downsides
Q1 Negatives: The company continued to face significant challenges in terms of unfavorable foreign exchange, supply, inflation and staffing shortage. Reimbursement headwinds in the U.S. restorative therapies are another downside. In APAC, the company saw some pressure on China as anticipated. Meanwhile, mounting expenses are putting pressure on margins.
A Competitive Landscape: The medical device market is intensely competitive. The orthopedic industry, in particular, is comprised of players like Stryker, Johnson & Johnson's DePuy, Smith & Nephew and Medtronic. ZBH needs to constantly introduce or acquire new products to withstand competitive pressure and maintain its market share.
Estimate Trend
The Zacks Consensus Estimate for Zimmer Biomet’s 2023 earnings per share (EPS) has remained constant at $7.45 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $7.33 billion. This suggests a 5.69% rise from the year-ago reported number.
Haemonetics has an earnings yield of 4.18% compared to the industry’s -2.25%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 12.21%. Its shares have rallied 26.5% against the industry’s 21.6% decline over the past year.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have surged 173.7% compared with the industry’s 12.3% rise over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.78% compared to the industry’s -7.07%. Shares of HOLX have risen 15.4% compared with the industry’s 12.3% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.
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Here's Why You Should Retain Zimmer Biomet (ZBH) for Now
Zimmer Biomet (ZBH - Free Report) is well-poised for growth in the coming quarters, backed by the business rebound since the past few quarters despite macroeconomic challenges. The Spine and Dental business spin-off is part of the company’s portfolio transformation focused on getting more revenues in faster growth markets.
Of late, Zimmer Biomet has been strengthening its foothold within emerging markets that provide long-term opportunities for growth. However, escalated expenses and a competitive landscape pose challenges for ZBH.
In the past year, this Zacks Rank #1 (Strong Buy) stock has increased 35.8% against the 21.6% fall of the industry and the 16.5% rise of the S&P 500 composite.
The leading musculoskeletal healthcare company has a market capitalization of $30.37 billion. The company has an earnings yield of 5.12% against the industry’s -2.25%. Zimmer Biomet surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 7.38%.
Let’s delve deeper.
Tailwinds
Business Recovery Continues: In the last reported quarter, ZBH’s domestic sales were well ahead of the company’s expectations, with elective procedure volumes recovering and procedure cancellation rates returning to pre-pandemic levels. Internationally, sales across the EMEA region were driven by faster recovery and strength across developed and emerging markets.
Image Source: Zacks Investment Research
In terms of product category, global knees witnessed a strong uptake across the full Persona product portfolio and sales traction in all regions. Global hips’ performance demonstrated continued traction across the Avenir and G7 product lines, along with the ongoing uptake of Rosa hip. The S.E.T. (sports extremities and trauma)category was impacted by the continued strong performance across its key focus areas of CMFT, sports medicines and upper extremities.
Dental and Spine Spin-off to Bode Well: Zimmer Biomet recently completed its planned spin-off procedure of the dental & spine arm as part of the company’s third phase of the ongoing transformation.
The transaction represents an important step in ZBH’s transition to a more streamlined company with a greater focus on optimized resource allocation, including innovations in profitable core businesses and attractive markets with opportunities to become market leaders.
A Focus on Emerging Markets: The company’s strategic investments in emerging markets over the past several quarters to improve operational and sales performance are yielding results. Following the integration of Biomet, the S.E.T business is expected to move forward, due to a strong presence in these regions with an extended portfolio that includes upper and lower joints.
Within emerging markets, we note that the strength of the Asia Pacific market has continued to drive strong revenue growth so far. ZBH is expected to continue with this trend post the COVID-19 mayhem, banking on a cadence of product launches and strong customer adoptions.
Downsides
Q1 Negatives: The company continued to face significant challenges in terms of unfavorable foreign exchange, supply, inflation and staffing shortage. Reimbursement headwinds in the U.S. restorative therapies are another downside. In APAC, the company saw some pressure on China as anticipated. Meanwhile, mounting expenses are putting pressure on margins.
A Competitive Landscape: The medical device market is intensely competitive. The orthopedic industry, in particular, is comprised of players like Stryker, Johnson & Johnson's DePuy, Smith & Nephew and Medtronic. ZBH needs to constantly introduce or acquire new products to withstand competitive pressure and maintain its market share.
Estimate Trend
The Zacks Consensus Estimate for Zimmer Biomet’s 2023 earnings per share (EPS) has remained constant at $7.45 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $7.33 billion. This suggests a 5.69% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , Penumbra (PEN - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Haemonetics has an earnings yield of 4.18% compared to the industry’s -2.25%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 12.21%. Its shares have rallied 26.5% against the industry’s 21.6% decline over the past year.
HAE sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have surged 173.7% compared with the industry’s 12.3% rise over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.78% compared to the industry’s -7.07%. Shares of HOLX have risen 15.4% compared with the industry’s 12.3% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.