Yahoo Finance Here's Why You Should Retain Zimmer Biomet (ZBH) Stock for Now
Zimmer Biomet ZBH is well-poised to grow in the coming quarters owing to the encouraging business recovery and increased provider capacity driving backlog pull-through. The company also progresses on the four-pillar strategy to expand the Knee business. Further, the global musculoskeletal market’s gradual stabilization bodes well for its operations.
Meanwhile, unfavorable solvency and currency fluctuations raise concerns for Zimmer Biomet.
In the past year, this Zacks Rank #3 (Hold) stock has declined 11% compared with the 2.8% fall of the industry and the 27.1% growth of the S&P 500 composite.
The leading musculoskeletal healthcare company has a market capitalization of $24.6 billion. The company has an earnings yield of 6.77% compared to the industry’s 0.2%. Zimmer Biomet surpassed estimates in three of the trailing four quarters and broke even in one, delivering an average earnings surprise of 2.46%.
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. Procedure recovery continues successfully without any significant impact from staffing challenges. Accordingly, the company is enjoying a tailwind from increased provider capacity, resulting in backlog pull-through in the recent quarters.
Despite a sizable day rate headwind and difficult year-over-year coms, U.S. sales rose 3.7% year over year in the first quarter of 2024. Global Knee’s growth was driven by the strong execution of the company’s four-pillar strategy, centering on a very strong Persona portfolio, combined with the benefits of the ROSA robotics platform. Further, sales growth in the S.E.T. category (with double-digit growth in the areas of CMFT, upper extremities and sports) and strong capital sales improved the overall performance.
Four-Pillar Strategy to Expand the Knee Business: Under its first pillar, the company is focusing on the ROSA robotics platform, combined with its Persona Cementless Knee, to accelerate growth. The penetration rate of cementless knees is likely to increase drastically in 2024 supported by new product launches. The second pillar focuses on Persona Revision, which provides a meaningful conversion and mix opportunities inside the category.
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Under the third pillar, Zimmer Biomet plans to work on the overall shift of the company’s legacy knee systems to a fully rounded-out Persona portfolio. The fourth pillar focuses on the development of the world's first Smart Knee Persona iQ, for which the company recently received 510 (K) approval.
Gradually Stabilizing Market: Despite tough market conditions, the global musculoskeletal market has witnessed gradual stability with better-than-expected sales growth in certain regions, driven by improved procedural volume.The focused execution of the company's global sales teams also helped accelerate global sales for Persona, the personalized knee system.
In line with this, in the first quarter of 2023, the company witnessed strong growth, driven by continued procedure recovery, strong execution and solid momentum with the latest innovation. ZBH saw another positive quarter of year-over-year momentum in large joints, with the overall global Knees, Hips and S.E.T. business growing 4.3%, 1.5% and 5.3%, respectively.
Downsides
Leveraged Capital Structure: Zimmer Biomet exited the first quarter of 2024 with cash and cash equivalents of $393 million and a near-term payable debt of $970 million, which raises concerns for its solvency. Meanwhile, total debt came up to $5.79 billion compared to $5.77 billion at the end of the fourth quarter of 2023.
Exposed to Currency Movement: A substantial portion of Zimmer Biomet’s foreign revenues is generated in Europe and Japan. In recent times, significant increases in the value of the U.S. dollar relative to currencies like the Euro, the Japanese Yen and the Swiss Franc are accordingly having adverse effects on the company’s results of operations. In the first quarter of 2024, net sales were adversely affected by 1.2% from changes in foreign exchange rates.
Estimate Trend
The Zacks Consensus Estimate for Zimmer Biomet’s 2024 earnings per share (EPS) has moved up to $8.10 from $8.07 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $7.75 billion. This suggests a 4.8% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are High Tide HITI, Hims & Hers Health HIMS and Medpace MEDP.
High Tide’s earnings are expected to surge 100% in 2024 compared with the industry’s 17.7%. HITI’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 91.7%. Its shares have surged 81.1% against the industry’s 2.9% fall in the past year.
HITI sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hims & Hers Health, sporting a Zacks Rank #1 at present, has an estimated 2024 earnings growth rate of a staggering 263.6% compared to the industry’s 17.7%. Shares of the company have increased 31.2% against the industry’s 24% fall over the past year.
HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 79.2%. In the last reported quarter, it delivered an average earnings surprise of 150%.
Medpace, also sporting a Zacks Rank #1 at present, has an estimated 2024 earnings growth rate of 27.1% compared to the industry’s 13.4%. Shares of MEDP have rallied 92.6% compared with the industry’s 5.5% rise over the past year.
MEDP’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 12.8%. In the last reported quarter, it delivered an average earnings surprise of 30.6%.
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Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report
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