Zimmer Upbeat on Biomet Takeover, Americas Sales Disappoint - Analyst Blog
On Feb 23, 2015, we issued an updated research report on Zimmer Holdings, Inc. (ZMH) – a major player in the musculoskeletal industry. Despite Zimmer reporting a mixed fourth-quarter 2014 with a bottom-line beat and a top-line miss, we are optimistic about the company’s impending $13.35 billion acquisition of Biomet, successful completion of which will help it consolidate its presence further in the global $45 billion musculoskeletal industry.
Zimmer’s fourth-quarter adjusted earnings per share of $1.71 were up 3% year over year and a penny ahead of the Zacks Consensus Estimate. On the other hand, revenues of $1.22 billion were down 2.4% at CER, also below the Zacks Consensus Estimate of $1.24 billion. The year-over-year decline was due to tepid sales in the Americas which more than offset decent sales growth in Asia Pacific and Europe.
Despite challenging market conditions like pricing pressure, the reported quarter witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies buoyed by improved procedural volume.
The musculoskeletal market saw a healthy momentum in the Asia Pacific (sales were up 8.4% at constant exchange rate or CER) as well as in Europe, Middle East and Africa (up 6.9%), indicating sustained healthy traction overseas, inclusive of strong performances in the key emerging markets. Although sales growth was disappointing in the Americas (down 1.6% year over year), the downside was a result of challenging year-over-year comparisons.
We are impressed with the strong strategic and financial goals that the combined entity expects to reach after the closure of the Biomet deal. The combined company (to be called Zimmer Biomet) will be more competitive in knee and hip franchises with a diverse revenue base to increase scale in the faster growing markets in adjacent categories. It will operate on a more comprehensive and diversified musculoskeletal portfolio with 17% market share, and will enjoy attractive cross-selling opportunities.
However, macroeconomic uncertainties, pricing pressure and unfavorable currency adversely impacted sales during the reported quarter. In addition, intense competition in the orthopedic market continues to pose major threats. The stock currently carries a Zacks Rank #3 (Hold).
Key Picks in the Sector
Some better-ranked medical products stocks are Phibro Animal Health Corp. (PAHC), Abaxis, Inc. (ABAX) and Vascular Solutions Inc. (VASC). All the three stocks sport a Zacks Rank #1 (Strong Buy).
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ZIMMER HOLDINGS (ZMH): Free Stock Analysis Report
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