Here's Why Investors Should Buy Zimmer Biomet (ZBH) Now

·4-min read

Zimmer Biomet Holdings, Inc. ZBH is gaining from an ongoing business recovery. The company has been working to strengthen its foothold in emerging markets that provide long-term opportunities for growth. However, consistent foreign exchange woes and stiff competition do not bode well.

In the past year, the Zacks Rank #2 (Buy) stock has gained 8.2% against 37.3% fall in the industry and a 5.3% decline in the S&P 500.

The renowned musculoskeletal healthcare company has a market capitalization of $26.51 billion. The company’s long-term projected growth of 6.2% compared with the industry’s growth projection of 14.3%.

Let’s delve deeper.

Factors At Play

Q4 Upsides: Zimmer Biomet ended the fourth quarter of 2022 with better-than-expected earnings and revenues. Each of the company’s geographic segments and product divisions recorded year-over-year sales growth at CER. Even amid the challenging macroeconomic conditions, expansion in the company’s adjusted gross and operating margins is encouraging. The company registered strong elective procedure recovery and commercial execution, especially in the knee and hip businesses. The U.S. business saw strength across the three priority areas within SET.

Business Recovery Continues: Zimmer Biomet is witnessing a rebound in its business in the past few quarters despite macroeconomic challenges.

In the fourth quarter, U.S. sales rose 6.2%, driven by strong elective procedure recovery and commercial execution, especially in Zimmer Biomet’s Knee and Hip businesses. The global knees business increased 10.2%, with U.S. knees up 10.8% and international knees up 9.3%, with strong performance driven by knee procedure recovery across most regions and an easier comp outside the United States. Global hips increased 8.4%, with U.S. hips up 9.5% and international hips up 10.8%, driven by strong international procedure recovery and easier comps outside the United States.

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Gradually Stabilizing Market: Despite challenging market conditions in the form of pricing pressure, the last few quarters witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies, banking on improved procedural volume.

In line with this, during the fourth quarter earnings update, the company noted that it witnessed better than expected growth driven by continued procedure recovery, strong execution, and a solid momentum with the innovation and also benefited from some favorable comps in the quarter. The company saw another positive quarter of year-over-year momentum in large joints, with the overall global hip and knee business growing more than 8% and 10%, excluding foreign exchange.

Downsides

Competitive Landscape: The presence of many players has made the medical devices market intensely competitive. The orthopedic industry, in particular, is highly competitive with players like Stryker, Johnson & Johnson's DePuy, Smith & Nephew and Medtronic. Zimmer Biomet must constantly introduce or acquire new products to withstand competitive pressure and maintain its market share.

Exposed to Currency Movement: Zimmer Biomet records a significant portion of its sales from the international market. This makes it highly exposed to currency fluctuations.

Estimate Trend

Zimmer Biomet has been witnessing a positive estimate revision trend for 2023. In the past 90 days, the Zacks Consensus Estimate for its 203 earnings has moved 1.4% north to $7.04.

The Zacks Consensus Estimate for 2023 revenues is pegged at $7.13 billion, suggesting a 2.7% fall from the 2022 reported number.

Key Picks

Few other top-ranked stocks in the overall healthcare sector include

Haemonetics Corporation HAE, TerrAscend Corp. TRSSF and Akerna Corp. KERN . Haemonetics and TerrAscend both sport a Zacks Rank #1, while Akerna carries a Zack Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics’ stock has risen 42.1% in the past year. Earnings Estimates for Haemonetics have increased from $2.87 per share to 2.91 for 2023, and from $3.02 per share to $3.28 for 2024 in the past 30 days.

HAE’s earnings beat estimates in each of the last four quarters, delivering an average surprise of 10.98%. In the last reported quarter, it reported an earnings surprise of 7.59%.

Estimates for TerrAscend in 2023 have remained constant at a loss of 10 cents per share in the past 30 days. Shares of TerrAscend have declined 70.6% in the past year.

TerrAscend’s earnings beat estimates in one of the last three quarters and missed the mark in the other two, the average negative surprise being 136.11%. In the last reported quarter, TRSSF delivered an earnings surprise of 216.67%.

Akerna’s stock declined 95.7% in the past year. Its estimates for 2023 have remained constant at a loss of $1.91 per share over the past 30 days.

Akerna missed earnings estimates in each of the last four quarters, delivering a negative earnings surprise of 15.49%, on average. In the last reported quarter, KERN delivered a negative earnings surprise of 13.33%.

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