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Here's Why You Should Hold Zimmer Biomet (ZBH) Stock for Now

Zacks Equity Research

Zimmer Biomet Holdings, Inc. ZBH has been consistently delivering impressive results, supported by a few encouraging developments.

This leading musculoskeletal healthcare company has a market cap of $28.2 billion.

In the past three months, the company has outperformed its industry. The stock has rallied 18.6% compared with the industry’s 2.5% rise.

Here we discuss factors that make this Zacks Rank #3 (Hold) company worth holding onto for now.

Short-Term Priorities: Zimmer Biomet is pursuing its short-term priorities to address near-term challenges. The priorities include supply recovery, supply efficiency, quality remediation, product launches and providing customer-centric solutions, among others. It is currently on track to complete its detailed remediation plan on the Warsaw North campus by the end of 2019.

Focus on Emerging Markets: Within emerging market, strength in Asia Pacific and EMEA (Europe, the Middle East and Africa) are driving revenues. In the second quarter, sales generated by Zimmer Biomet in EMEA rose 1.9% year over year at CER. Also, Asia-Pacific registered 4.7% year-over-year growth at CER. Banking on several product launches and strong customer adoption, Zimmer Biomet expects the APAC and EMEA market strength to continue through 2019.

 

Strong Cash Position: Zimmer Biomet exited second-quarter 2019 with cash and cash equivalents of $403.1 million. Long-term debt at the end of the second quarter totaled $6.72 billion, showing a reduction from $8.81 billion in the first quarter. Year to date, net cash provided by operating activities was $584.6 million.
 

Downsides

However, there are a few factors which have been impeding growth of late.

Pricing Pressure Persists: Pricing continues to remain a major headwind for Zimmer Biomet. The company’s top-line growth in the reported quarter was partially offset by continued pricing pressure, mostly in the American and European markets. In the second quarter of 2019, pricing pressure was a negative 2.7%, in line with the company's expectations.

Competitive Landscape: The presence of a large number of players has made the medical devices market intensely competitive. The orthopedic industry in particular is highly competitive with the presence of players like Stryker, Johnson & Johnson and Medtronic.

Which Way Are Estimates Treading?

For the third quarter of 2019, the Zacks Consensus Estimate for loss is pegged at $1.76, mirroring 7.98% growth from the year-ago quarter. The same for revenues is pegged at $1.87 billion, calling for year-over-year growth of 1.96%.

For 2019, the Zacks Consensus Estimate for earnings is pegged at $7.82, which suggests a 2.4% year-over-year rise. The same for revenues is pegged at $7.95 billion, which indicates a 0.3% rise from the prior-year quarter.

Key Picks

A few better-ranked stocks in the broader medical space are Haemonetics HAE, Medtronic MDT and Amedisys AMED, each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

Medtronic’s long-term earnings growth rate is projected at 7.32%.

Amedisys’ long-term earnings growth rate is expected to be 16.26%.

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Haemonetics Corporation (HAE) : Free Stock Analysis Report
 
Medtronic PLC (MDT) : Free Stock Analysis Report
 
Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
 
Amedisys, Inc. (AMED) : Free Stock Analysis Report
 
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