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Zimmer Biomet Rides on New Operational Plan Amid Several Woes

Zacks

On Dec 3, we issued an updated research report on Zimmer Biomet Holdings Inc. ZBH. While strategic acquisitions and planned operational execution buoy optimism on the stock, issues like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations adversely impacted the company’s sales. The company carries a Zacks Rank #3 (Hold).

In order to address several near-term challenges, management recently started to review its 2018 operating plan to clearly define its go-forward strategies in a number of key areas. In this regard, the company has identified several immediate opportunities to improve Zimmer Biomet’s operational execution.

First, the company has plans to continue with its efforts in completing its quality remediation work at the Warsaw North Campus. In this context, to support the quality compliance of its manufacturing network, Zimmer Biomet will consistently invest in developing a best-in-class quality management system.

Second, in order to revive accelerated sales recapture, the company aims to steadily focus on fully restoring the supply of certain key brands within knee, hip and SET categories.

Third, with respect to commercial strategy, Zimmer Biomet’s immediate priorities are to restore supply, engage with the sales channel and return to offense. In addition to sales recapture, the company will also target the significant quantity of commercial releases scheduled in 2018. Per the latest update, Zimmer Biomet is on track to have a complete product portfolio in the back half of 2019.

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Also, the company is progressing well with its two largest commercial projects, namely the Persona Revision system and the Rosa robotics knee application. Moreover, management has notified that Zimmer Biomet is ahead of its schedule to perform its first case in Australia.

This apart, improvement in the company’s global Knee and Hip sales performance and growth in the Asia Pacific region are encouraging. Banking on its priority goals like quality remediation, supply recovery efforts and product launches, Zimmer Biomet is constantly reporting top-line figures within its S.E.T arm.

On the flip side, we are concerned about the escalating costs and expenses exerting considerable pressure on the company’s bottom line. Also, declining dental sales at CER is a drag. Negative currency movements persist to be a major headwind for the company.

Over the past three months, shares of this leading musculoskeletal healthcare company have underperformed the industry. The stock has lost 4.5%, comparing unfavorably with the industry’s 4.4% fall.

Key Picks

A few better-ranked stocks in the broader medical space are Integer Holdings Corporation ITGR, Surmodics, Inc. SRDX and Veeva Systems VEEV.

Integer has an expected earnings growth rate of 31.2% for the fourth quarter 2018 and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is projected at 10%. The stock currently carries a Zacks Rank of 2.

Veeva Systems’ long-term earnings growth rate is estimated at 19.3%. The stock is presently a Zacks #2 Ranked player.

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