On Tuesday, JPMorgan made a positive shift in its outlook for medical device company Zimmer Biomet (NYSE:ZBH), upgrading the stock from Neutral to Overweight and adjusting the price target to $128 from $125. Currently trading at $106.85, ZBH shows strong fundamentals with a "GREAT" financial health score according to InvestingPro analysis. The upgrade comes as the firm foresees a potential for the company's earnings multiple to expand.
The analyst from JPMorgan highlighted that Zimmer Biomet's ~11.5-12.0x 2026E earnings multiple currently accounts for several factors, including recent challenges in execution due to supply and ERP headwinds, as well as concerns regarding the sustainability of growth in the orthopedics market.
The company maintains impressive profitability with a 71.9% gross margin and steady revenue growth of 4.35%. Despite these issues, the analyst suggests that there is room for the earnings multiple to grow towards 14.0-15.0x.
The firm acknowledges the fair discount on Zimmer Biomet's execution, with limited expectations for positive EPS revisions in the coming year. However, they also recognize the potential for growth supported by an improved product portfolio, healthy volumes, and less negative pricing. This view is reinforced by the company's performance in 2024E, which has been resilient despite ongoing headwinds.
JPMorgan further notes that while the initial baseline for 2025E organic growth is conservative at around 4%, there is potential for this figure to reach approximately 5% by year-end, providing additional upside. The analyst describes Zimmer Biomet as a stock with potential for multiple expansion in the short term, and suggests that the introduction of new products in 2025 could further enhance its investment appeal.
The upgrade reflects JPMorgan's belief in Zimmer Biomet's ability to navigate past recent challenges and capitalize on growth opportunities, positioning the company for a positive trajectory in the market.
InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of ZBH among 1,400+ top US stocks.
In other recent news, Zimmer Biomet has made significant strides in the medical technology sector.
The U.S. Food and Drug Administration has granted premarket approval to the company's Oxford Cementless Partial Knee system, making it the only FDA-approved cementless partial knee implant in the U.S. This comes after extensive testing and studies, demonstrating the safety and effectiveness of the implant.
Zimmer Biomet has also reported a 4% increase in net sales for the third quarter, reaching $1.824 billion. The company's earnings per share for the quarter exceeded projections, hitting $1.74. Despite challenges with the implementation of an Enterprise Resource Planning system, Truist Securities maintained a Hold rating on the stock, while Oppenheimer retained its Outperform rating.
The company repurchased approximately $600 million in shares during Q3 2024 and adjusted its full-year revenue growth projection to 4.25%-4.75% in constant currency. Zimmer Biomet's free cash flow is expected to reach around $1 billion, with adjusted EPS anticipated to be between $7.95 and $8.05. These are recent developments in the company's performance and strategy.
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