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Zimmer Biomet Focuses on Priority Areas Despite Pricing Woes

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On Dec 18, we issued an updated research report on Zimmer Biomet Holdings, Inc. ZBH. The company continues to witness strength in the Asia Pacific (APAC) and Europe, Middle East and Africa (EMEA) regions. However, pricing persists to be a major concern for this Zacks Rank #3 (Hold) stock.

Shares of this leading musculoskeletal healthcare company have outperformed its industry over the past six months. The stock has rallied 27% compared with the 3.4% rise of the industry.

During the third quarter of 2019, Zimmer Biomet’s better-than-expected quarterly numbers were driven by improved performances across all its geographies and most operating segments.

In terms of product launch, the unveiling of ROSA robotics Knee, myMobility digital health platform (developed in partnership with Apple), the Walter mini robotic platform, the Signature ONE Planner for upper extremities are among major achievements.

Zimmer Biomet is also executing well within its priority areas like quality remediation, supply recovery efforts and product introductions. With respect to quality remediation, the company made a good progress in the third quarter. It is currently on track to complete its detailed remediation plan on the Warsaw North campus by this year-end.

Of late, Zimmer Biomet is seen to solidify its foothold in the emerging markets that provide long-term opportunities. The company’s strategic investments in these zones over the last several quarters to improve its operational and sales performance are yielding results. Zimmer Biomet expects consistent growth in the APAC and EMEA markets this year.

The company should benefit from favorable long-term trends that bode well for sustained growth, driven by obesity, wear and tear of joints from more active lifestyles, uptick in the emerging markets, new material technologies, advancements in the surgical techniques and proven clinical benefits of joint replacement procedures.

However, the company’s top-line growth has been partially offset by an unrelenting pricing pressure, mostly in the operating segments of Americas and Europe. We are further worried about this pricing scenario as it will be affected by cost-containment efforts of governmental healthcare, local hospitals and health systems. In the third quarter, pricing pressure was a negative 2.9%, in line with the company's estimates.

Furthermore, escalating costs and expenses are denting the company’s adjusted operating margin. Adverse currency movements are a lingering downside.

Key Picks

Some better-ranked stocks from the broader medical space are Haemonetics Corporation HAE, National Vision Holdings, Inc (EYE - Free Report) and ResMed Inc RMD.

Haemonetics currently has a Zacks Rank #2 (Buy) and a projected long-term earnings growth rate of 13.5%.

National Vision’s long-term earnings growth rate is estimated at 17.8%. The company currently holds a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ResMed’s long-term earnings growth rate is estimated at 14%. It currently flaunts a Zacks Rank #1.

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