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Here's Why You Should Add Zimmer Biomet to Your Portfolio Now

Zacks Equity Research

Zimmer Biomet Holdings, Inc. ZBH has been gaining from balanced segmental growth globally. Product launches and its focus toward its priority areas also bode well. The company’s segmental prospects as well as 2020 guidance are expected to further drive its rally.

Over the past year, shares of the Zacks Rank #2 (Buy) company have lost 31.5% compared with the industry’s 21.3% decline.

The renowned musculoskeletal healthcare provider has a market capitalization of $17.78 billion. The company projects 6.7% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 0.9%, on average, over the trailing four quarters.

 


 

Let’s delve deeper.

Impressive Q4 Results: We are upbeat about the company’s better-than-expected results in the fourth quarter of 2019. We are also optimistic about its strong sales growth across all geographies. Most operating segments also registered robust growth at CER. It is also executing well on its priority areas like quality remediation, supply recovery efforts and product launches. Product launches in the fourth quarter like that of the Persona Revision system and ROSA Knee also boosted market sentiment.

Expansion in both margins in the quarter buoys optimism. Its revised sales growth guidance for 2020 also bodes well.

Focus on Emerging Markets: Of late, Zimmer Biomet has been redirecting its focus toward strengthening its foothold in emerging markets that provide long-term growth opportunities. The company has already started to derive benefits from its investments in the regions over the past several quarters, thus, improving operational and sales performance.

Post the integration of Biomet, the consolidated company is currently enjoying strong presence in the emerging markets, with an extended portfolio that includes upper and lower joints.

Gradually Stabilizing Market: We are optimistic about Zimmer Biomet’s efforts to gradually make itself stable in the global musculoskeletal market, banking on better-than-expected sales growth in certain geographies over the last few quarters on improved procedural volume. Notably, the rally in fourth-quarter sales was driven by favorable demographics and the growing utilization of musculoskeletal healthcare in emerging markets and under-penetrated developed markets.

The focused execution of the company’s global sales teams amid a stable global musculoskeletal market also helped accelerate global sales for Persona, the personalized knee system.

However, despite the strong upside potential of the company, its top-line growth might get affected by the continued pricing pressure mainly in the Americas and Europe operating segments. Apart from this, it operates in a stiff competitive landscape in the orthopedic industry, where it faces competition from biggies like Medtronic. To withstand the competitive pressure and maintain its market share, Zimmer Biomet needs to constantly introduce or acquire products.

Estimate Trend

The company is witnessing a positive estimate revision trend for 2020. Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 0.2% north to $8.32.

The consensus estimate for the company’s first-quarter 2020 revenues is pegged at $2.04 billion, suggesting a 3.3% rise from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks from the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc. HRC.

ResMed has a projected long-term earnings growth rate of 14.4%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.

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