Zimmer (ZBH) Plagued By Various Internal And External Issues

On Aug 14, we issued an updated research report on Warsaw, IN-based Zimmer Biomet Holdings Inc. (NYSE:ZBH) , a leading musculoskeletal healthcare company. It designs and distributes orthopedic reconstructive products, spine, bone healing, thoracic products, dental implants and related surgical products.

Over the last three months, Zimmer Biomet was trading below the industry on factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations. The stock has till now lost 4.5% compared against the industry’s 4% gain.

With the company delivering a dull second-quarter result, we expect this downside to continue in the upcoming period. Per management, the company is still fighting headwinds such as slump in knee business, shortage in supply of some products, thus leading to inability to recapture the lost customers across the United States and gain new ones. Also, the trimmed 2017 guidance adds to our concerns indicating slim chances of recovery ahead.

The market also seems to be apprehensive about the departure of Zimmer Biomet’s decade-old CEO David C. Dvorak. Notably, during his 10-year tenure, Zimmer Biomet has transformed into a global leader in musculoskeletal healthcare. Through a combination of organic growth and strategic acquisitions, the company’s revenue has doubled in this phase and it has introduced a broad portfolio of technologies, solutions and personalized services.

Only time will tell if the stepping down of Drovak leaves an adverse impact on the company’s business. Currently, we remain on the sidelines until further visibility is obtained on this matter.

On a positive note, we look forward to the ongoing synergy from the LDR Holding acquisition, which should broaden and complement the company’s musculoskeletal offering. This is in line with the strategy to grow through inorganic means by focusing on mega mergers.

Management is also striving to develop a strong spine portfolio in order to cash in on the opportunities. The company’s spine offerings such as Mobi-C Cervical Disc prosthesis and Vitality Spinal Fixation System showed a considerable progress in performance.

Zimmer Biomet has been of late working to strengthen its foothold in the emerging markets providing long-term opportunities. The company’s strategic investments in these regions over several quarters with a view to enhance operational and sales performance are yielding results.

Zacks Rank & Key Picks

Zimmer Biomet currently carries a Zacks Rank #4 (Sell).

Some of the better-ranked medical stocks are IDEXX Laboratories, Inc. (NASDAQ:IDXX) , Lantheus Holdings, Inc. (NASDAQ:LNTH) and Align Technology, Inc. (NASDAQ:ALGN) . While Align Technology sports a Zacks Rank #1 (Strong Buy), Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 6.8% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has surged 70.4% over the last six months.

Align Technology has a long-term expected earnings growth rate of 26.6%. The stock has rallied roughly 22.3% over the last three months.

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