Zimmer Biomet Holdings, Inc. (ZBH - Free Report) has been gaining from several sales-building efforts — including product launches, partnerships and robust segmental growth. The company has also been enhancing focus on emerging markets. Further, its Quality Begins With Me program continues to perform well on steady customer adoption.
However, the company’s declining Spine & CMF sales at constant exchange rate (CER) are disappointing. We believe that escalating costs and expenses are also exerting pressure on the adjusted operating margin.
Over the past year, shares of the Zacks Rank #3 (Hold) stock have outperformed its industry. The company has gained 43.2% compared with 18.8% growth of its industry. Also, it has outperformed the S&P 500’s 25.7% rally during the same period.
The renowned musculoskeletal healthcare provider has a market capitalization of $31 billion. The company projects 7.1% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 0.4%, on average, over the trailing four quarters.
Let’s delve deeper.
Q3 Results: We are upbeat about Zimmer’s third-quarter performance, which was robust with better-than-expected earnings and revenues. It witnessed year-over-year improvements in revenues in the majority of its segments as well as across Europe, Middle East and Africa (EMEA), and the Asia Pacific. Zimmer Biomet is optimistic about continuing the recent trend in the EMEA and the Asia Pacific on product launches and strong customer adoptions.
Recent Approvals and Product Launches: We are upbeat about the company’s top-of-the-line products in the industry. Strong adoption of its products — Persona Revision Knee System, JuggerStitch meniscal repair device, The Tether for treatment of scoliosis and ROSA ONE Spine System — is a key catalyst.
The company’s mymobility digital health platform (developed in partnership with Apple in October 2018) and the recent major launches of flagship products like Persona Partial and Persona Cementless instill optimism as well.
Partnership: Zimmer Biomet signed a multinational distribution agreement with Align Technology, with respect to the iTero Element family of intraoral scanners. The agreement is expected to expand Zimmer’s footprint in the global digital restorative dentistry solutions market, which further buoys optimism.
Pricing Pressure: Pricing continues to remain a major headwind for Zimmer. The company’s top-line growth in the reported quarter was partially offset by continued pricing pressure, mostly in the Americas and Europe operating segments. We remain concerned about the pricing scenario as it will likely be affected by cost-containment efforts by governmental healthcare, local hospitals and health systems.
Competitive Landscape: The medical devices market intensely has become competitive due to the presence of a large number of players. The orthopedic industry, in particular, faces steep competition from other key players. Zimmer Biomet needs to constantly introduce or acquire products to withstand the competitive pressure and maintain its market share.
Zimmer is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.1% north to $7.83.
The Zacks Consensus Estimate for the company’s fourth-quarter 2019 revenues is pegged at $2.02 billion, suggesting 2.2% rise from the year-ago reported number.
Some better-ranked stocks from the broader medical space are Haemonetics Corporation (HAE - Free Report) , Medtronic plc (MDT - Free Report) and Vapotherm, Inc (VAPO - Free Report) .
Haemonetics, currently carrying a Zacks Rank #2 (Buy), has a projected long-term earnings growth rate of 13.5%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company currently carries a Zacks Rank #2.
Vapotherm’s long-term earnings growth rate is estimated at 49.5%. It currently carries a Zacks Rank #2.
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