Zimmer Biomet's ZBH strategic product launches and stabilizing market trends bolster our confidence in this stock. Yet, factors like macroeconomic uncertainties put pressure on the bottom line. The stock carries a Zacks Rank #3 (Hold).
Factors Driving ZBH's Share Price
Zimmer Biomet is witnessing strong market share gains within the reconstructive Knees and Hips in key geographies in recent times despite macroeconomic challenges. The third quarter of 2024 marks the 11th consecutive quarter in which Zimmer Biomet's revenues have grown mid-single digit or above. The International business, overall, exceeded sales expectations in the third quarter, backed by strong demand in key markets across both Reconstructive Knees, Hips and the S.E.T. categories.
Although the company’s Knee business witnessed some challenges posed by the ERP system implementation, internationally, this business grew 10% in the quarter. Further, the Oxford Partial cementless Knee launch in 2025 is expected to drive 60% share in the European market. Within Hips, the company expects the upcoming launches of Z1 HAMMR and Navigation, like OrthoGrid and ROSA posterior in Europe, to drive market share. Zimmer Biomet also currently looks forward to a strong pickup of ROSA Shoulder in 2025.
Currently, Zimmer Biomet is in its diversification journey with its S.E.T. (comprising Surgical, Sports, Upper Extremities, and Restorative Therapies) business. The company has strategically grown S.E.T. sales by at least mid-single digits in recent times. Zimmer Biomet currently expects this trend to continue toward the end of 2024 and also in 2025 and 2026, driven by consistent market share gains of CMFT (Craniomaxillofacial and Thoracic), Sports and Upper Extremities.
The company is currently focusing on ROSA Robotic Platform combined with its Persona cementless Knee. According to Zimmer Biomet, this is a powerhouse combination that will continue to accelerate growth. Zimmer Biomet expects ROSA and Persona cementless together to enhance its robotics and cementless penetration from the current 20% level to 50% to 60% range at a rapid pace.
In fact, the company currently expects the penetration rate of cementless knees to increase drastically in 2024 banking on new product launches. In this regard, following the company’s alliance with THINK Surgical, Zimmer Biomet has become the only orthopedic company in the world that will offer both a handheld CT scan-based system in the TMINI, exclusive for Zimmer Biomet platform, as well as a simplified, CT scan-less robotic system in the current form factor of ROSA for total knee arthroplasty.
Over the past three months, shares of ZBH have gained 1.1% compared with the industry’s 9.3% growth. With the company consistently focusing on strategic market expansion and new product launches, we expect the stock to gain momentum in the coming days.
Factors Affecting ZBH's Growth
The ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting growth for Zimmer Biomet. Deteriorating international trade and geopolitical complications lead to a tough situation related to raw material and labor cost as well as freight charges. Added to this, a high interest rate scenario has put the dental treatment space (which is highly elective) in a tight spot. Within the Hip category, headwinds in Russia are disproportionately impacting the outside U.S. business. Further, within the S.E.T. category, Zimmer Biomet is facing challenges in the form of reimbursement headwinds, particularly in the Restorative Therapies business. In addition, the company also noted about experiencing acute supply challenges within Sports and Trauma. All these are creating significant pressure on the company’s revenues and operating profit.
During the third quarter, the company incurred 3.9% increase in cost of product sold (excluding intangible asset amortization) and a 3.1% rise in selling, general and administrative expenses. Adjusted gross margin reflected a contraction of 34 basis points, while the adjusted operating margin contracted 18 bps in the quarter.
Further, a substantial portion of Zimmer Biomet’s foreign revenues is generated in Europe and Japan. In recent times, significant increases in the value of the dollar relative to the euro, the Japanese yen, the Swiss franc, or other currencies have had an adverse effect on the company’s operations. In the third quarter of 2024, Zimmer Biomet’s net sales were affected by 0.1% due to changes in foreign exchange rates. For the full year, the company currently expects an adverse impact of 75 basis points from foreign exchange on its revenues.
Key Picks
Some better-ranked stocks in the broader medical space are Globus Medical GMED, Boston Scientific BSX and ResMed RMD. While GMED sports a Zacks Rank #1 (Strong Buy), BSX and RMD carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for Globus Medical’s 2024 EPS have remained constant at $2.84 in the past 30 days. Shares of the company have surged 61% in the past year compared with the industry’s growth of 24.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, with the average beat being 12.1%. In the last reported quarter, it delivered an earnings surprise of 10.3%.
Boston Scientific’s shares have surged 58.3% in the past year. Estimates for the company’s earnings per share (EPS) have jumped 2.5% to $2.46 for 2024 and 0.4% to $2.72 for 2025 in the past 30 days. BSX’s earnings surpassed estimates in each of the trailing four quarters, delivering an average beat of 8.3%. In the last reported quarter, it posted an earnings surprise of 8.6%.
Estimates for ResMed’s fiscal 2025 EPS have risen 2.2% to $9.22 in the past 30 days. Shares of the company have surged 58.8% in the past year compared with the industry’s 29.2% growth. RMD’s earnings surpassed estimates in each of the trailing four quarters, with the average beat being 6.4%. In the last reported quarter, it delivered an earnings surprise of 8.4%.
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Zimmer Biomet Holdings, Inc. (ZBH): Free Stock Analysis Report