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SYK vs ZBH: Which Stock Looks More Promising Ahead of Q1 Earnings?
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The global orthopedic space has seen significant transformative changes in recent times. Major players like Stryker (SYK - Free Report) and Zimmer Biomet (ZBH - Free Report) have rapidly adopted differentiated strategies to make up for the lost growth during the pandemic.
Both these S&P 500 players, who have started their 2024 journey on an optimistic note, are due to report first-quarter 2024 results in the upcoming week. Accordingly, it’s time for investors to revisit their quarter’s takeaway and assess the overall growth potential to make smart choices.
Sneak Peek Ahead of Q1 Earnings
Going by the industrywide trend, both orthopedic majors are expected to have faced supply challenges in the backdrop of the current geopolitical landscape. Further, healthcare labor shortages might have impeded their growth in the first quarter.
However, the companies are likely to have overcome this obstruction by banking on their solid fundamentals and growth strategies. Strong strategic execution and innovations are expected to have driven first-quarter revenues from the Knees, Hips and Extremities businesses of both.
Overall, Stryker and Zimmer Biomet are expected to have witnessed strong procedural volume growth across the global market. They are set to be benefitted in Q1 from growing global prospects within hips and knees implants, as well as spine and trauma fixation devices. While SYK is set to report strong revenue growth banking on its Mako SmartRobotics for robotic arm-assisted surgeries, ZBH is expected to have witnessed strong performance across its ROSA robotics system. (Read more: Ongoing Procedural Growth May Aid Stryker's Q1 Earnings)
We are particularly hopeful about several new meaningful product launches by both companies early in 2024. If those took place as planned, we expect the companies to report a strong revenue increase in the respective categories. (Read more: What's in the Cards for Zimmer Biomet in Q1 Earnings?)
Meanwhile, Stryker is expected to have eased the pressure of mounting costs with its several cost-cutting initiatives and restructuring plans.
Zimmer Biomet, on the other hand, might have witnessed an improved margin scenario, banking on the global restructuring program along with other cost-saving initiatives launched in late 2023.
It is quite evident from the above discussion that both companies are well-positioned ahead of first-quarter earnings. So, which of them should you invest in now?
Let’s find out by comparing their projected growth rates, share performance, valuation metrics, solvency and long-term growth prospects.
Surprises and Estimates
Stryker surpassed earnings estimates in each of the trailing four quarters, with the average beat being 5.09%. Zimmer Biomet, on the other hand, exceeded estimates in three quarters and matched the same in one, with the average beat being 4.99%.
For Stryker, the Zacks Consensus Estimate for first-quarter 2024 revenues suggests a 5.8% rise from the year-ago reported figure. The Zacks Consensus Estimate for the company’s first-quarter 2024 earnings per share indicates a 9.8% decline from the year-ago adjusted earnings.
The Zacks Consensus Estimate for Zimmer Biomet’s first-quarter 2024 revenues suggests a 2.3% rise from the year-ago reported figure. However, the Zacks Consensus Estimate for the company’s first-quarter 2024 earnings per share indicates a 0.53% decline from the year-ago adjusted earnings.
Earnings Whispers
Our quantitative model suggests that the combination of the following two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Going by this model, an earnings beat looks unlikely for both the stocks this time. SYK has a Zacks Rank #3 and an Earnings ESP of -0.78%. ZBH currently carries a Zacks Rank #3 and has an Earnings ESP of -1.07%.
Over the past year, Striker has outperformed Zimmer Biomet in terms of share price performance. SYK has risen 10.9%, while ZBH has plunged 12%.
One-Year Performance
Image Source: Zacks Investment Research
Valuation
If we look at the value components both companies offer investors at the current levels, ZBH has a Value Score of B while SYK has a Value Score of C.
This is evident from the Price/Earnings ratio as well. ZBH shares currently trade at 14.7X forward earnings, well off its 5-year high of 25.16X and below the median of 17.48X.
SYK, on the other hand, trades at 27.24X forward earnings, above the median of 25.51X and near the 5-year high of 30.46X. The industry’s forward earnings multiple stays at 20.14X.
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
ZBH stock is trading cheap compared to the industry making it an attractive value investment prospect at this moment compared to SYK.
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
Financials
In terms of financials, SYK seems to have high liquidity to weather short-term headwinds and navigate economic cycles compared to ZBH.
Stryker ended 2023 with a total cash balance of $3.05 billion, while its short-term debt was $2.09 billion.
Zimmer Biomet, on the other hand, ended the year with a cash balance of $416 million, while its short-term debt was $900 million. This implies that ZBH’s cash and cash equivalents are not sufficient even for short-term debt repayment.
In terms of leverage, SYK’s long-term debt-to-capitalization stands at 41.1%, higher than ZBH’s 31.6%, providing the latter more financial flexibility.
Strong Long-term Prospects
Favorable Market
Booming market prospects on favorable demographic trends play a vital role here.The global orthopedic implants market is projected to witness a CAGR of 6.2% from 2023 to 2030 (per a Grand View Research report). Factors such as the increasing prevalence of musculoskeletal disorders among the aging population, advancements in healthcare infrastructure and rising awareness about minimally invasive surgical techniques are expected to drive this growth.
Both companies are diligently working on strengthening their foothold in international developed and emerging markets that provide long-term opportunities for growth. Their strategic investments in these regions over the past several quarters to improve operational and sales performance are yielding results.
Focus on Artificial Intelligence
Like other healthcare sectors, since 2023, there has been an increase in the adoption of AI within the orthopedic device space. This is likely to rapidly pave the way for advanced and efficient operational management within the industry. Digital enhancement, while optimizing costs, proves to be better for clinical outcomes for both SYK and ZBH. This is already evident from the continued success of Maco and the ROSA robotics platforms. With both companies diligently investing in the development of robot-assisted treatment options, we expect them to garner significant market opportunities.
Bottom Line
Although both companies hold potential for long-term growth, they need to work on the short-term challenges. Both are currently struggling with macroeconomic odds, which are significantly denting their profit margins. Their moderately high leverage ratios further add to the woes.
We expect them to effectively implement their cost-saving initiatives to garner higher profits going forward. However, for the time being, it is safe for investors to watch SYK and ZBH for some more time before taking the plunge.
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SYK vs ZBH: Which Stock Looks More Promising Ahead of Q1 Earnings?
The global orthopedic space has seen significant transformative changes in recent times. Major players like Stryker (SYK - Free Report) and Zimmer Biomet (ZBH - Free Report) have rapidly adopted differentiated strategies to make up for the lost growth during the pandemic.
Both these S&P 500 players, who have started their 2024 journey on an optimistic note, are due to report first-quarter 2024 results in the upcoming week. Accordingly, it’s time for investors to revisit their quarter’s takeaway and assess the overall growth potential to make smart choices.
Sneak Peek Ahead of Q1 Earnings
Going by the industrywide trend, both orthopedic majors are expected to have faced supply challenges in the backdrop of the current geopolitical landscape. Further, healthcare labor shortages might have impeded their growth in the first quarter.
However, the companies are likely to have overcome this obstruction by banking on their solid fundamentals and growth strategies. Strong strategic execution and innovations are expected to have driven first-quarter revenues from the Knees, Hips and Extremities businesses of both.
Overall, Stryker and Zimmer Biomet are expected to have witnessed strong procedural volume growth across the global market. They are set to be benefitted in Q1 from growing global prospects within hips and knees implants, as well as spine and trauma fixation devices. While SYK is set to report strong revenue growth banking on its Mako SmartRobotics for robotic arm-assisted surgeries, ZBH is expected to have witnessed strong performance across its ROSA robotics system. (Read more: Ongoing Procedural Growth May Aid Stryker's Q1 Earnings)
We are particularly hopeful about several new meaningful product launches by both companies early in 2024. If those took place as planned, we expect the companies to report a strong revenue increase in the respective categories. (Read more: What's in the Cards for Zimmer Biomet in Q1 Earnings?)
Meanwhile, Stryker is expected to have eased the pressure of mounting costs with its several cost-cutting initiatives and restructuring plans.
Zimmer Biomet, on the other hand, might have witnessed an improved margin scenario, banking on the global restructuring program along with other cost-saving initiatives launched in late 2023.
It is quite evident from the above discussion that both companies are well-positioned ahead of first-quarter earnings. So, which of them should you invest in now?
Let’s find out by comparing their projected growth rates, share performance, valuation metrics, solvency and long-term growth prospects.
Surprises and Estimates
Stryker surpassed earnings estimates in each of the trailing four quarters, with the average beat being 5.09%. Zimmer Biomet, on the other hand, exceeded estimates in three quarters and matched the same in one, with the average beat being 4.99%.
For Stryker, the Zacks Consensus Estimate for first-quarter 2024 revenues suggests a 5.8% rise from the year-ago reported figure. The Zacks Consensus Estimate for the company’s first-quarter 2024 earnings per share indicates a 9.8% decline from the year-ago adjusted earnings.
The Zacks Consensus Estimate for Zimmer Biomet’s first-quarter 2024 revenues suggests a 2.3% rise from the year-ago reported figure. However, the Zacks Consensus Estimate for the company’s first-quarter 2024 earnings per share indicates a 0.53% decline from the year-ago adjusted earnings.
Earnings Whispers
Our quantitative model suggests that the combination of the following two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Going by this model, an earnings beat looks unlikely for both the stocks this time. SYK has a Zacks Rank #3 and an Earnings ESP of -0.78%. ZBH currently carries a Zacks Rank #3 and has an Earnings ESP of -1.07%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stock Performance
Over the past year, Striker has outperformed Zimmer Biomet in terms of share price performance. SYK has risen 10.9%, while ZBH has plunged 12%.
One-Year Performance
Image Source: Zacks Investment Research
Valuation
If we look at the value components both companies offer investors at the current levels, ZBH has a Value Score of B while SYK has a Value Score of C.
This is evident from the Price/Earnings ratio as well. ZBH shares currently trade at 14.7X forward earnings, well off its 5-year high of 25.16X and below the median of 17.48X.
SYK, on the other hand, trades at 27.24X forward earnings, above the median of 25.51X and near the 5-year high of 30.46X. The industry’s forward earnings multiple stays at 20.14X.
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
ZBH stock is trading cheap compared to the industry making it an attractive value investment prospect at this moment compared to SYK.
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
Financials
In terms of financials, SYK seems to have high liquidity to weather short-term headwinds and navigate economic cycles compared to ZBH.
Stryker ended 2023 with a total cash balance of $3.05 billion, while its short-term debt was $2.09 billion.
Zimmer Biomet, on the other hand, ended the year with a cash balance of $416 million, while its short-term debt was $900 million. This implies that ZBH’s cash and cash equivalents are not sufficient even for short-term debt repayment.
In terms of leverage, SYK’s long-term debt-to-capitalization stands at 41.1%, higher than ZBH’s 31.6%, providing the latter more financial flexibility.
Strong Long-term Prospects
Favorable Market
Booming market prospects on favorable demographic trends play a vital role here.The global orthopedic implants market is projected to witness a CAGR of 6.2% from 2023 to 2030 (per a Grand View Research report). Factors such as the increasing prevalence of musculoskeletal disorders among the aging population, advancements in healthcare infrastructure and rising awareness about minimally invasive surgical techniques are expected to drive this growth.
Both companies are diligently working on strengthening their foothold in international developed and emerging markets that provide long-term opportunities for growth. Their strategic investments in these regions over the past several quarters to improve operational and sales performance are yielding results.
Focus on Artificial Intelligence
Like other healthcare sectors, since 2023, there has been an increase in the adoption of AI within the orthopedic device space. This is likely to rapidly pave the way for advanced and efficient operational management within the industry. Digital enhancement, while optimizing costs, proves to be better for clinical outcomes for both SYK and ZBH. This is already evident from the continued success of Maco and the ROSA robotics platforms. With both companies diligently investing in the development of robot-assisted treatment options, we expect them to garner significant market opportunities.
Bottom Line
Although both companies hold potential for long-term growth, they need to work on the short-term challenges. Both are currently struggling with macroeconomic odds, which are significantly denting their profit margins. Their moderately high leverage ratios further add to the woes.
We expect them to effectively implement their cost-saving initiatives to garner higher profits going forward. However, for the time being, it is safe for investors to watch SYK and ZBH for some more time before taking the plunge.