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Can Zimmer Biomet (ZBH) Grow on Hip Business in Q4 Earnings?

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) is set to report fourth-quarter 2018 results on Feb 1, before the market opens.

The company delivered an earnings surprise of 1.87% in the last reported quarter. Its earnings topped the consensus mark in three of the preceding four reported quarters, the average beat being 1.54%.

Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Zimmer Biomet is again expected to report strong top-line numbers for its S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) arm, backed by a firm focus on priority areas like quality remediation, supply recovery and product launches.

The company is receiving a consistent positive feedback on the already marketed products. Within Sports, Comprehensive Baseplate, Sidus Stem-Free Shoulder and jogger stitch are anticipated to see a positive response. Within Extremities and Trauma subcategories, the company is investing a lot as well. We are also optimistic about a strong customer uptake of the company’s Comprehensive Augmented Baseplate.

Management keeps envisioning a better show within S.E.T. during the second half of 2018 as compared to the first half.

However, the company earlier noted that, it is going to deal with a much more challenging comps in the fourth quarter as compared to the third. This apart, the sequentially last reported quarter reaped notable timing benefits with regard to both tenders and capital sales on the tender front, both in Asia-Pacific and EMEA. This benefit is seemingly not visible in the yet-to-be-reported quarter. Meanwhile, the company’s S.E.T business has been of late massively hit by supply issues and a persistent pricing pressure.

We expect all these factors to impact the company’s fourth-quarter top line.

The Zacks Consensus Estimate for S.E.T. revenues of $455 million remains marginally above $454 million, recorded in fourth-quarter 2017.

Looking at the focused execution of Zimmer Biomet’s sales teams, we expect the global adoption rate of the flagship personalized knee system — Persona — to be impressive.The company is seeing a very good uptake of the more recently released Persona Trabecular Metal Tibia.

The Zacks Consensus Estimate for Knee revenues stands at $730 million as compared to $731 million in the prior-year quarter.

Within Hip business, we anticipate the company to render a sturdy performance in the Asia-Pacific region. In the previously reported quarter, the company registered 8.6% sales growth at constant currency exchange rate within Hip in the aforementioned geography. Our consensus estimate for Hip revenues from Asia Pacific is pegged at $136 million, which reflects a 28.3% rise from the year-ago quarter.

The Zacks Consensus Estimate of $500 million for Hip revenues shows a 0.2% rise from the year-ago level.

However, Zimmer Biomet was grappled with pricing pressure of approximately (2.5%) during the fourth quarter. In absence of any favorable changes along these lines, the headwinds might affect the company’s impending quarterly results.

Overall, fourth-quarter total revenues are projected at $2.06 billion, indicating a 0.67% decline from the year-earlier quarter.

What Our Quantitative Model Suggests:

Our proven Zacks model clearly shows that a company with a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zimmer Biomet has a Zacks Rank #3, which increases the predictive power of ESP. It also has an Earnings ESP of +0.05%, together which a likely earnings surprise is predicted.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering from the same space as these too comprise the right mix of elements to exceed expectations this reporting cycle.

DexCom, Inc. (DXCM - Free Report) has an Earnings ESP of +8.93% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

MacroGenics, Inc. (MGNX - Free Report) has an Earnings ESP of +8.15% and a Zacks Rank of 2.

NanoString Technologies, Inc. (NSTG - Free Report) has an Earnings ESP of +4.64% and is a Zacks #2 Ranked stock.

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