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Zimmer Biomet (ZBH) Business Recovery Continues Despite FX Woe

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Zimmer Biomet's (ZBH - Free Report) strategic spin-off of the non-core dental and spine business and stabilizing market trends bolster our confidence in the stock. Yet, factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations continue to adversely impact Zimmer Biomet's sales. The stock carries a Zacks Rank #3 (Hold).

Zimmer Biomet has been witnessing a rebound in its business in the past few quarters despite macroeconomic challenges. According to the company, procedure recovery continues successfully, aided by no meaningful impact from COVID or staffing challenges. Accordingly, the company is benefiting from increased provider capacity, resulting in backlog pull-through in recent quarters.

In terms of business category, Global Knees grew 10.5% in the second quarter of 2023, driven by the strong execution of the company’s four-pillar strategy. It was backed by a robust Persona portfolio, combined with the benefits of the ROSA robotics platform. Global Hips grew 4.9% on the back of new product flow, execution and market recovery.

Zimmer Biomet recently completed its planned spin-off procedure of the dental & spine arm. 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.

Recently, Zimmer Biomet implemented four meaningful pillars inside its Knee business to drive pricing stability, mix benefit and competitive conversions.

Over the past year, shares of ZBH have risen 13.1% compared with the industry’s 0.6% rise.

On the flip side, although Zimmer Biomet is gradually coming out of the impact of the two-and-a-half-year-long healthcare crisis, the ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting growth. Deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor cost as well as freight charges, and rising interest rates have put the dental treatment space (which is highly-elective) in a tight spot.

Further, within the S.E.T. category, Zimmer Biomet is facing challenges in the form of reimbursement headwinds, particularly in the Restorative Therapies business. In addition, the company also witnessed acute supply challenges within Sports and Trauma. All these are creating significant pressure on the company’s operating profit.

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

Key Picks

Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , Quanterix (QTRX - Free Report) and SiBone (SIBN - Free Report) .

Haemonetics’ stock has risen 19.9% in the past year. Earnings estimates for Haemonetics have increased from $3.56 to $3.74 in 2023 and from $3.96 to $4.07 in 2024 in the past 30 days. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 19.39%. In the last reported quarter, it delivered an earnings surprise of 38.16%.

Estimates for Quanterix’s 2023 loss per share have narrowed from $1.19 to 97 cents in the past 30 days. Shares of the company have increased 167.5% in the past year against the industry’s decline of 1.7%. It currently carries a Zacks Rank #2 (Buy).

QTRX’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 30.39%. In the last reported quarter, it came up an earnings surprise of 55.56%.

Estimates for SiBone’s 2023 loss have narrowed from $1.42 to $1.27 per share in the past 30 days. Shares of the company have increased 31% in the past year compared with the industry’s rise of 1.9%. It currently carries Zacks Rank #2.

SIBN’s earnings beat estimates in all the trailing four quarters, the average surprise being 20.37%. In the last reported quarter, SiBone delivered an earnings surprise of 26.83%.

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