Zimmer Biomet Grows Internationally Despite Pricing Pressure

On Jun 11, we issued an updated research report on Zimmer Biomet Holdings, Inc. (NYSE: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) company.

This leading musculoskeletal healthcare company has outperformed its industry over the past six months. The stock has rallied 10.7% compared with the industry’s 8.5% rise.

During the first quarter, although Zimmer Biomet registered sluggish segmental numbers, the results were slightly above its expectations. The company saw strength in the Europe, Middle East and Africa and Asia-Pacific belts as well as in the Spine & CMF business.

Zimmer Biomet is also executing well within its priority areas like quality remediation, supply recovery efforts and product launches. In terms of new products, the solid roll-out of ROSA robotics platform was clearly a major feat.

Over the recent past, Zimmer Biomet has been working 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 strength in the APAC and EMEA markets to be consistent in 2019.

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

We are also upbeat about the company’s plan to deliver 2-3% growth in 2020 and stabilize its business. In order to achieve this goal, the company has designed a three-pillar strategy for 2020 and beyond. First, it is targeting to be labeled as the most preferred organization to work in. Second, Zimmer Biomet is trying to build its brand image as a trusted partner to its stakeholders. Third, the company wants to deliver high shareholder returns. For this, it is aiming to implement a five-year program that will help improve the company’s financials.

However, the company’s top-line growth has been partially offset by an unrelenting pricing pressure. We are worried about this pricing scenario as it will be affected by cost-containment efforts by governmental healthcare, local hospitals and health systems. In the first quarter of 2019, pricing pressure was negative 2.6%, in line with the company's expectations.

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 in the broader medical space are Cerner Corporation (NASDAQ:CERN) , Penumbra (NYSE:PEN) and Bruker Corporation (NASDAQ:BRKR) . While Cerner sports a Zacks Rank #1, Penumbra and Bruker carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cerner’s long-term earnings growth rate is expected to be 13.5%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

Bruker’s long-term earnings growth rate is estimated at 11.7%.

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