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Zimmer Biomet Solid on Global Prospects Despite Price Pressure

Zacks Equity Research

On Mar 15, we issued an updated research report on Zimmer Biomet Holdings, Inc. ZBH.The company continues to witness strength in the Asia Pacific (APAC) and Europe, Middle East and Africa (EMEA) regions. However, pricing continues to remain a major concern for this Zacks Rank #3 (Hold) company.

This leading musculoskeletal healthcare company has been outperforming its industry over the past three months. The stock has gained 20.4% in comparison with the industry’s 13.6% rise.

Over the recent past, Zimmer Biomet has been working to strengthen its foothold in emerging markets that provide long-term opportunities. The company’s strategic investments in these regions over the past several quarters to improve operational and sales performance are yielding results. While the integration of Biomet is complete, the combined company has started to benefit from strong presence in emerging markets with an extended portfolio. Zimmer Biomet expects strength in the APAC and EMEA markets to continue in 2019.

The company should benefit from favorable long-term trends that point toward sustained growth driven by obesity, wear and tear of joints from more active lifestyles, growth in emerging markets, new material technologies, advances in surgical techniques and proven clinical benefits of joint replacement procedures.

We are also upbeat about the company’s plan to deliver 2-3% growth in 2020 and stabilize its business. In order to achieve the goal, the company has designed a three-pillar strategy for 2020 and beyond. First, the company is targeting to be labeled as the most preferred organization to work in. Second, Zimmer Biomet is trying to build the brand image as a trusted partner to its stakeholders. Third, the company wants to deliver high shareholder return. For this, Zimmer Biomet is planning to implement a five-year plan that will help improve the company’s financials.

However, the company’s top-line growth has been partially offset by continued pricing pressure. We are concerned about the pricing scenario as it will be affected by cost containment efforts by governmental healthcare, local hospitals and health systems. We note that pricing pressure in the fourth quarter of 2018 was a negative 2%.

Furthermore, escalating costs and expenses are denting the adjusted operating margin. Adverse currency movements continue to be a concern.

Key Picks

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation ITGR, Veeva Systems Inc. VEEV and Hologic, Inc. HOLX.

Integer Holdings projects earnings growth rate of 31.2% for the first quarter. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Veeva Systems’ long-term earnings growth rate is projected at 14.8%. The stock currently carries a Zacks Rank #2.

Hologic’s long-term earnings growth rate is projected at 8.9%. The stock presently has a Zacks Rank #2.

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