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Supply Delay Hits Zimmer Biomet, Operational Plan Buoys Hope

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On Apr 6, we issued an updated research report on Zimmer Biomet Holdings Inc. (ZBH - Free Report) . Issues like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations adversely impacted Zimmer Biomet’s sales over the recent past. The company carries a Zacks Rank #4 (Sell).

Over the last three months, shares of this leading musculoskeletal healthcare company have underperformed the broader industry on the above-mentioned headwinds. The stock has lost 15.3% versus the broader industry’s 5.8% gain.

 

We are still disappointed with Zimmer Biomet's persistently declining core Knee sales performance of the recent past, primarily due to slower pace of supply recovery and sales recapture of certain key brands, particularly in the United States. We are also worried about the channel integration of LDR going against plans because of dissynergies associated with it. Additionally, pricing pressure remains a major woe.

Estimate revision trend for 2018 is also unfavorable with 17 estimates moving south and none in the opposite direction over the past month. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 20 cents downward to $8.04 per share.

On a positive note, the company’s 2018 operational plan looks promising. In order to address several near-term challenges, management has recently started to review the plan to clearly define its go-forward strategies in a number of key areas. In this regard, the company has identified several immediate opportunities to improve its operational execution.

Moreover, the emerging markets opportunity is expected to reach a value of $10 billion by 2018 for the Reconstructive and Trauma markets. We also note that despite the recent global economic downturn, which has massively affected Zimmer Biomet’s business in Latin America, the other parts of the emerging markets, especially the Asia Pacific and EMEA continue to drive growth for the company. In the fourth quarter of 2017, the company witnessed an accelerated upside in its Asia Pacific business, strongly benefiting from distributor orders. Particularly, Japan and China demonstrated a marked improvement.

Key Picks

A few better-ranked stocks in the broader medical sector are athenahealth, Inc. , Bio-Rad Laboratories, Inc. (BIO - Free Report) and Centene Corporation (CNC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see  the complete list of today's Zacks #1 Rank stocks here.

athenahealth has an expected long-term growth rate of 17.7% and the current-year metric is pegged at 52.8%.

Bio-Rad has an expected long-term growth rate of 20% and the same for 2018 stands at 42.9%.

Centene has an expected long-term growth rate of 14.4% and the current year’s metric is projected at 43.1%.

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