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Zimmer Biomet's (ZBH) Recovery Slows in Americas Amid Pandemic

Zacks Equity Research
·4-min read

Zimmer Biomet Holdings, Inc.’s ZBH slow recovery in Americas amid the emergence of a new strain of coronavirus remains a major concern. The company currently has a Zacks Rank #4 (Sell).

In the past year, Zimmer Biomet has underperformed its industry. The stock has declined 22.8% compared with the 4.6% fall of the industry.

Zimmer Biomet ended the third quarter with a lower-than-expected revenue figure. The year-over-year decline in reported and constant currency revenues was concerning. Sales were soft in the Americas. In terms of operating segments, the company’s core divisions like Knees, Hips, and Dental & Spine registered significant year-over-year declines in revenues at CER.

In the quarter, Zimmer Biomet continued to face COVID-induced challenges and market pressure. According to the company, the third quarter was full of unexpected negative environmental impacts that were mostly out of control. The quarter brought greater COVID pressure than expected for Zimmer Biomet. According to Zimmer Biomet, the business recovery continued in August but then declined in September with the rise in Delta variant cases and increase in staffing shortage.

Zimmer Biomet Holdings, Inc. Price

Zimmer Biomet Holdings, Inc. Price
Zimmer Biomet Holdings, Inc. Price

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

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Significant margin contractions and a slashed 2021 guidance are concerns too.

Gross margin, after excluding intangible asset amortization, was 69.8%, reflecting a contraction of 71 basis points (bps) in the third quarter. Selling, general and administrative expenses were up 1.6%. Research and development expenses rose 26.8%. Adjusted operating margin contracted 268 bps to 22.4% during the quarter.

This time, on a dismal quarterly performance, the company slashed its financial guidance for 2021. Reported revenue growth is expected in the range of 11.3% to 12.5% (from the earlier expectation of 14.5% to 16.5%) compared with the last year. Adjusted EPS for the full year is expected in the range of $7.32 to $7.47 ($7.65 to $7.95).

On a positive note, Zimmer Biomet ended the third quarter with better-than-expected earnings. In the quarter, the company saw an improving trend across a number of markets. Geographically, in the third quarter, EMEA grew 5.9% year over year, up 0.3% compared to the 2019 level. According to Zimmer Biomet, this is the first time that the region has posted growth since the start of the pandemic. Asia Pacific grew 0.5% year over year, up from the 2019 pre-pandemic level.

In terms of operating segments, the sports extremity and trauma category increased 4.2% or 7.7% from the 2019 level, driven by continuing commercial specialization, new product introductions and the contribution from strategic acquisitions. The company’s ‘Other’ category grew 15.4% year over year driven by the ongoing demand for ROSA Knee as well as increased revenues from the launch of ROSA partial knee and hip applications.

Moreover, Zimmer Biomet’s spin-off decision of the non-core dental and spine business is expected to prove strategic.

Key Picks

A few better-ranked stocks from the broader medical space are Chemed Corporation CHE, Laboratory Corporation of America Holdings, or LabCorp LH and Medpace Holdings, Inc. MEDP, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chemed has a long-term earnings growth rate of 7.7%. Chemed surpassed earnings estimates in three of the trailing four quarters and missed in one, delivering a surprise of 5.6%, on average.

Chemed has outperformed its industry over the past year. CHE has gained 3.7% against a 35.6% industry decline.

LabCorp reported third-quarter 2021 adjusted EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. LabCorp’s revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%.

LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed estimates in the trailing four quarters, the average surprise being 25.7%.

Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.

Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.


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Chemed Corporation (CHE) : Free Stock Analysis Report

Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report

Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report

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