Zimmer Biomet Rides On Spine Business, Knee Challenges Stay

On Jun 6, we issued an updated research report on Warsaw, IN-based Zimmer Biomet Holdings Inc. (NYSE:ZBH) . It is a leading musculoskeletal healthcare company that designs and distributes orthopedic reconstructive products, spine, bone healing, thoracic products; dental implants, and related surgical products.

Over the last three months, Zimmer Biomet was trading below the Zacks categorized Medical Product industry on factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations. Despite a better-than-expected first-quarter 2017, the company’s stock price further traded down, lowering its 2017 guidance.

Per Zimmer Biomet, a lower-than-expected manufacturing output of certain legacy brands during first quarter has possibly led to declining product availability in second quarter. This in turn forced the company to reduce its full-year guidance. Besides, the still sluggish knee business on continued pricing pressure added to the woes. The stock till now has gained 5.7%, lower than the 7.4% gain of the broader industry.

Estimate revision trend for full-year 2016 also remains unfavorable with 15 estimates moving south with no revision in the opposite direction over past couple of months. Earnings estimates have also moved down by 7 cents over this period to $8.54 per share.

On a positive note, we look forward to the expected synergy from the recently completed LDR Holding acquisition, which should broaden and complement the company’s musculoskeletal offering. This is in line with the strategy to grow through inorganic means by focusing on mega acquisitions.

Management is also striving to develop spine portfolio in order to cash in on the opportunities. Reportedly in the first quarter, Zimmer Biomet saw a 32.1% improvement in Spine and CMF segment. The company’s spine offerings such as Mobi-C Cervical Disc prosthesis and Vitality Spinal Fixation System showed a considerable progress in performance.

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.

With winding up of Biomet’s integration, the combined company has started to benefit from a strong presence in the emerging markets with an extended portfolio of both upper and lower joints.

Zacks Rank & Key Picks

Zimmer Biomet currently carries Zacks Rank #3 (Hold). Few better-ranked medical stocks are Align Technology, Inc. (NASDAQ:ALGN) , Inogen, Inc. (NASDAQ:INGN) and Accelerate Diagnostics, Inc. (NASDAQ:AXDX) . Align Technology and Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 22.8%. The stock roughly added 44.1% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of around 79.9%.

Accelerate Diagnostics has an expected long-term adjusted earnings growth rate of 30%. The stock has added roughly 13.1% over last three months.

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