Zimmer Biomet Hurt By Supply Delay, Knee Challenges Remain

On Nov 21, we issued an updated research report on Warsaw, IN-based Zimmer Biomet Holdings Inc. (NYSE:ZBH) . The company carries a Zacks Rank #4 (Sell).

Over the last three months, this leading musculoskeletal healthcare company was trading below the broader industry on macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations. The stock has gained 0.2% versus the broader industry’s 7% gain.

The company’s third-quarter results fell short of the Zacks Consensus Estimate and its own expectations. Per management, Zimmer Biomet is grappling with headwinds such as supply delay of certain products, leading to the inability of regaining lost customers in the United States and tapping new ones; the softened domestic market conditions; the impact of consecutive hurricanes and a significant price reduction in the Indian knee market. The trimmed 2017 guidance adds to our concerns indicating little chances of recovery ahead.

Estimate revision trend for 2017 also remains unfavorable with 17 estimates moving south and none in the opposite direction over the past month. The stock has seen the Zacks Consensus Estimate being revised 20 cents downward over this period to $8.04 per share.

On a positive note, we look forward to the expected synergies to be drawn from the recently completed LDR Holding acquisition, which should broaden and complement the company’s musculoskeletal offering. This is in line with its strategy to grow through inorganic means by focusing on mega buyouts. We are also impressed by the strong strategic and financial goals which the combined entity anticipates to reach, now that the deal has been closed.

Zimmer Biomet has been of late working to strengthen its foothold in the emerging markets that provide long-term opportunities. The company’s strategic investments in these regions over several quarters with a view to enhance operational and sales performance are yielding results.

Key Picks

A few better-ranked medical stocks are PetMed Express, Inc. (NASDAQ:PETS) , Align Technology, Inc. (NASDAQ:ALGN) and Myriad Genetics, Inc. (NASDAQ:MYGN) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 79.4% in a year.

Align Technologyhas a long-term expected earnings growth rate of 28.9%. The stock has gained 168.4% over a year.

Myriad Geneticshas a long-term expected earnings growth rate of 15%. The stock has surged 91.6% in a year.

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