Here's Why You Should Retain Zimmer Biomet (ZBH) for Now
Zimmer Biomet ZBH is well-poised for growth in the coming quarters, backed by its efforts to expand its global presence to address the huge demand in the musculoskeletal space. Zimmer Biomet’s business recovery continues.
However, stiff competition and foreign exchange headwinds are a concern.
In the past year, this Zacks Rank #3 (Hold) stock has declined 5.8% compared with the 5.2% fall of the industry and the 12% rise of the S&P 500 composite.
The leading musculoskeletal healthcare company has a market capitalization of $23.63 billion. The company has an earnings yield of 6.60% against the industry’s -1.81%. Zimmer Biomet surpassed estimates in all of the trailing four quarters, delivering an average earnings surprise of 5.09%.
Let’s delve deeper.
Tailwinds
Business Recovery Continues: Zimmer Biomet has witnessed a rebound in its business in the past few quarters despite macroeconomic challenges. According to the company, procedure recovery continues successfully, aided by no meaningful impact from COVID or staffing challenges. Accordingly, the company is enjoying a tailwind from increased provider capacity, resulting in backlog pull-through in the recent quarters.
In Q3, U.S. sales rose 6%, well ahead of the company’s expectations, with elective procedure volumes recovering. Sales growth in the S.E.T. category, together with strong capital sales, improved the overall performance in this region. International sales grew 2.9% year over year. All regions benefited from the continued recovery of elective procedures, backlog recapture, strong commercial execution and new product uptake.
Focus on Emerging Markets to Drive Growth: Over the recent past, Zimmer Biomet has been working to strengthen its foothold in emerging markets that provide long-term opportunities for growth. The company's strategic investments in these regions over the past several quarters to improve operational and sales performance are yielding results.
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Market opportunities for orthopedic implants globally are expected to grow to $66.6 billion by 2025. Within emerging markets, strength in the Asia Pacific market continued to drive strong revenue growth so far. As the COVID-19 severity is over now, banking on a cadence of product launches and strong customer adoptions, Zimmer Biomet is successfully expanding its presence in the emerging market.
Gradually Stabilizing Market: Despite challenging market conditions in the form of pricing pressure, the last few quarters witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies, banking on improved procedural volume. In line with this, in the third quarter of 2023, the company witnessed strong growth driven by continued procedure recovery, strong execution, and solid momentum with the new innovation. The company saw another positive quarter of year-over-year momentum in large joints, with the overall global knee and S.E.T. business growing 7.3% and 2.8%, respectively.
Downsides
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's DePuy, Smith & Nephew and Medtronic.
Exposed to Currency Movement: A substantial portion of Zimmer Biomet’s foreign revenues is generated in Europe and Japan. Significant increases in the value of the U.S. Dollar relative to the Euro, the Japanese Yen, the Swiss Franc or other currencies are having adverse effects on the company’s operations.
Estimate Trend
The Zacks Consensus Estimate for Zimmer Biomet’s 2023 earnings per share (EPS) has been constant at $7.51 in the past 90 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $7.38 billion. This suggests a 6.4% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, Insulet PODD and DexCom DXCM. While Haemonetics and DexCom each carry a Zacks Rank #2 (Buy), Insulet sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Haemonetics’ stock has risen 11.6% in the past year. Earnings estimates for Haemonetics have increased from $3.82 to $3.86 in 2023 and $4.07 to $4.11 in 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.
Estimates for Insulet’s 2023 earnings per share have increased from $1.61 to $1.90 in the past 30 days. The company's shares have decreased 40.9% in the past year compared with the industry’s decline of 7%.
PODD’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.4%.
Estimates for DexCom’s 2023 earnings per share have increased from $1.23 to $1.41 in the past 30 days. Shares of the company have fallen 7.8% in the past year compared with the industry’s decline of 7.1%.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%. In the last reported quarter, it delivered an average earnings surprise of 47.1%.
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Haemonetics Corporation (HAE) : Free Stock Analysis Report
DexCom, Inc. (DXCM) : Free Stock Analysis Report
Insulet Corporation (PODD) : Free Stock Analysis Report
Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
