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Zimmer Biomet Rides on Product Launches Despite Pricing Woes

Zacks Equity Research

On Jan 21, we issued an updated research report on Zimmer Biomet Holdings, Inc. ZBH. The company continues to witness strength in the Asia Pacific (APAC), Europe, the Middle East and Africa (EMEA) regions. However, pricing persists to be a major concern for this Zacks Rank #3 (Hold) stock.

Shares of this leading musculoskeletal healthcare company have outperformed its industry over the past six months. The stock has rallied 21.6% compared with the 3.7% rise of the industry.

In terms of product launch, the unveilings of ROSA robotics Knee, myMobility digital health platform (developed in partnership with Apple), the Walter mini robotic platform and the Signature ONE Planner for upper extremities are among major achievements by Zimmer Biomet in recent times.

Zimmer Biomet Holdings, Inc. Price

Zimmer Biomet Holdings, Inc. Price

Zimmer Biomet Holdings, Inc. price | Zimmer Biomet Holdings, Inc. Quote

The company is also performing well in its priority areas like quality remediation, supply recovery efforts and product introductions. With respect to quality remediation, the company made a good progress in the third quarter. It is currently on track to complete its detailed remediation plan on the Warsaw North campus by this year-end.

Of late, Zimmer Biomet is seen to solidify its foothold in the emerging markets offering long-term opportunities. The company’s strategic investments in these zones over the last several quarters to improve its operational and sales performance are yielding results. The company expects consistent growth in the APAC and EMEA markets this year.

It should benefit from favorable long-term trends, driven by obesity, wear and tear of joints from more active lifestyles, uptick in the emerging markets, new material technologies, advancements in the surgical techniques and proven clinical benefits of joint replacement procedures.

However, in the last reported quarter, the company’s top-line growth was partially offset by an unrelenting pricing pressure, mostly in the operating segments of Americas and Europe. We are further worried about the pricing scenario as it will be affected by cost-containment efforts of governmental healthcare, local hospitals and health systems. In the third quarter, pricing pressure was a negative 2.9%, in line with the company's estimates.

Moreover, escalating costs and expenses are eroding the company’s adjusted operating margin. Adverse currency movements are a lingering downside as well.

Key Picks

Some better-ranked stocks from the broader medical space are Haemonetics Corporation HAE, Hill-Rom Holdings, Inc HRC and Medtronic plc MDT.

Haemonetics currently has a Zacks Rank #1 (Strong Buy) and a projected long-term earnings growth rate of 13.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hill-Rom’s long-term earnings growth rate is estimated at 11.7%. The company currently carries a Zacks Rank #2 (Buy).

Medtronic’s long-term earnings growth rate is expected at 7.4%. It is currently Zacks #2 Ranked.

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