On Tuesday, Oppenheimer maintained its Outperform rating on Zimmer Biomet (NYSE:ZBH) shares but reduced the price target to $135 from $145. This adjustment reflects the ongoing enterprise resource planning (ERP) issues that the company has been facing since August. These challenges arose during an upgrade to SAP software and are expected to impact product distribution in the second half of 2024.
The firm has updated its estimates, factoring in an approximate 1% impact on Zimmer Biomet's annualized 2024 sales, with a more significant effect anticipated in the third quarter compared to the fourth. Despite these setbacks, some cost savings are expected to mitigate the bottom-line impact, particularly in the fourth quarter.
Zimmer Biomet previously disclosed that the root cause of the ERP problem has been identified. The company anticipates that shipment velocity will return to normal by the end of the fourth quarter in 2024. In the near term, these ERP challenges are overshadowing the positive outlook for the company's new product releases, which are expected to contribute more significantly to growth in the latter half of 2024 and into 2025.
Additionally, Zimmer Biomet's previously announced operational expenditure restructuring program is projected to provide support in 2025. The company is navigating through the current challenges with a focus on resolving the ERP issues and leveraging its new product pipeline and restructuring initiatives to bolster future performance.
In other recent news, Zimmer Biomet is facing adjustments in earnings forecasts due to challenges with its Enterprise Resource Planning (ERP) system implementation. The ERP issues are expected to impact the company's 2024 revenue by approximately 1%, leading to a 2% reduction in revenue growth for the second half of the year.
Analyst firms such as BTIG, Needham, Truist Securities, Canaccord Genuity, and TD Cowen have responded by adjusting their price targets for Zimmer Biomet, while maintaining Hold ratings. However, Stifel has kept its Buy rating for the company.
The ERP issues primarily affect Zimmer Biomet's Sports Medicine, Extremities, and Trauma business segment. Despite these challenges, Zimmer Biomet has recently completed a $700 million financial transaction involving the issuance of notes due in 2034.
The company is also set to acquire AI-driven surgical guidance firm OrthoGrid Systems. These recent developments illustrate Zimmer Biomet's efforts to navigate through the ERP challenges while focusing on future growth and expansion.
InvestingPro Insights
Despite the ERP challenges highlighted in Oppenheimer's analysis, InvestingPro data reveals some positive aspects of Zimmer Biomet's financial position. The company's P/E Ratio (Adjusted) stands at 17.07, which is relatively low compared to its PEG Ratio of 0.21, suggesting potential undervaluation relative to its growth prospects. This aligns with an InvestingPro Tip indicating that ZBH is "Trading at a low P/E ratio relative to near-term earnings growth."
Furthermore, Zimmer Biomet has demonstrated financial stability with a revenue of $7.52 billion over the last twelve months and a healthy gross profit margin of 71.79%. An InvestingPro Tip notes that the company "Has maintained dividend payments for 13 consecutive years," which may appeal to income-focused investors, especially given the current dividend yield of 0.92%.
While the ERP issues may present short-term challenges, another InvestingPro Tip suggests that the "Stock generally trades with low price volatility," which could provide some stability for investors during this period of operational adjustment. For those considering a deeper analysis, InvestingPro offers 5 additional tips that could provide further insights into Zimmer Biomet's investment potential.
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