Zimmer Biomet's LDR Buyout On Track, Dental Still A Pain

On Sep 2, 2016, we issued an updated research report on Zimmer Biomet Holdings, Inc. (NYSE:ZBH) – a major player in the musculoskeletal industry. The consolidated company, formed post the merger of the legacy Zimmer Holdings and Biomet, is successfully expanding through strategic mergers and acquisitions.

While, in the last-reported second quarter of 2016, the company posted sales growth in all of its geographical regions, it’s the still sluggish Dental sales that is a cause for concern for us. However, management is optimistic about a stabilizing sequential performance that has set the stage for expected growth in the second half of 2016.

Zimmer Biomet is currently looking forward to the ongoing U.S. launch of the 3i (LON:III) T3 Short Implant designed for the challenging vertical grafting procedures and the 3.1 millimeter diameter aesthetic implant for narrow anterior sites.

Apart from that, Zimmer Biomet’s $1 billion LDR buyout deal should bolster its presence in the $10 billion global spine market. Not only will the buyout expand Zimmer Biomet’s portfolio of innovative solutions but will also provide the company with a strong foothold in the fast growing cervical disc replacement market. This transaction is also expected to drive significant financial benefits for the consolidated company post 2017.

We are also encouraged about the slowly stabilizing global musculoskeletal market. The last few quarters witnessed gradual stability in this market with better-than-expected sales growth in certain geographies, with theirs banking on improved procedural volume. This was driven by favorable demographics and growing utilization of musculoskeletal healthcare in emerging markets, including the under-penetrated developed markets.

On the flip side, macroeconomic uncertainties and pricing pressure, with an unfavorable currency, continue to adversely impact sales. In addition, intense competition in the orthopedic market continues to raise concerns. Although, the big margin contraction poses a major threat, we look forward to the ongoing synergy utilization the company is profiting from with the grand $13.35 billion acquisition of Biomet.

Key Picks in the Sector

Some medical product stocks worth a look are Quidel Corp. (NASDAQ:QDEL) , GW Pharmaceuticals plc (NASDAQ:GWPH) and NuVasive, Inc. (NASDAQ:NUVA) .

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