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Zimmer Biomet (ZBH) to Report Q3 Earnings: What's in Store?

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Zacks Equity Research
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Zimmer Biomet Holdings, Inc. ZBH is set to report third-quarter 2020 results on Nov 6, before market open.

In the last-reported quarter, the company’s earnings of 5 cents beat the Zacks Consensus Estimate by 106.9%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on all occasions, the average beat being 32.9%.

Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Following a dull second quarter where non-elective healthcare procedures were postponed largely to prioritize coronavirus-led damage control, the third-quarter results are expected to reflect a sort of rebound for Zimmer Biomet on gradual reopening of the economy.

The company is optimistic about recovery in procedure volumes in the United States. Per the last update, this trend was prominent in July, even as some of the states with rising COVID numbers like Florida, Texas and Arizona. With the non-COVID-19 healthcare system continuing to get back to pre-pandemic state, this trend is expected to have continued through the rest of the months of the third quarter.

Zimmer Biomet Holdings, Inc. Price and EPS Surprise

Zimmer Biomet Holdings, Inc. Price and EPS Surprise
Zimmer Biomet Holdings, Inc. Price and EPS Surprise

Zimmer Biomet Holdings, Inc. price-eps-surprise | Zimmer Biomet Holdings, Inc. Quote

The S.E.T. business (comprising Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma), the company’s major focus area, is expected to have put up a sequentially better performance in the third quarter amid the mayhem. These procedures, being less elective by nature, are expected to have been less impacted in the third quarter. However, some adverse business impacts are expected due to widespread adoption of stay-at-home measures, thus leading to comparatively lesser procedures.

Within the Spine & CMF (Craniomaxillofacial) business, even if we don’t consider the COVID-19 impact, Zimmer Biomet has been witnessing growth deceleration in recent quarters, mainly due to unfavorable pricing. This along with the pandemic-led business disruption is likely to have significantly impacted the business.

Dental product volumes too are once again expected to have declined significantly in the third quarter due to the extremely elective nature of the products, which can be deferred longer than other procedures of Zimmer Biomet. This is likely to have affected revenues. Notably, the products have done extremely well over the last few quarters on increased commercial and channel investments. Although, in its last update, the company talked about certain strategic investments within this business, this might not have contributed to the third-quarter performance.

We expect the company to have registered slightly better performances within its Hips and Knees product portfolios in the United States, which is better equipped for pandemic support compared to the non-U.S. markets of Zimmer Biomet.The nature of the business, which is non-elective, might have continued with sequential improvement in elective procedure trends. Despite COVID-19 hurdles, product introductions like Avenir, supply stability and improved commercial execution are expected to have driven the Hip business in the quarter under review. Also, the company earlier expected to see very strong demand for ROSA, even through the pandemic.

Q3 Estimates

The Zacks Consensus Estimate for total revenues of $904.3 million suggests a 54.5% decline from the prior-year quarter’s reported figure. Also, the consensus estimate for earnings per share is pegged at $1.05, indicating a 40.7% decline from the year-ago period.

What Our Quantitative Model Predicts

Our proven model predicts an earnings beat for Zimmer Biomet this time around. The combination of a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Zimmer Biomet has an Earnings ESP of +4.10%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank:The company currently carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these also have the right combination of elements to beat on earnings this reporting cycle.

LHC Group LHCG has an Earnings ESP of +1.85% and it currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zoetis ZTS has an Earnings ESP of +3.98% and is a Zacks #2 Ranked stock.

SeaSpine Holdings SPNE has an Earnings ESP of + 6.67% and it carries a Zacks Rank of 2 at present.

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Zoetis Inc. (ZTS) : Free Stock Analysis Report
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