Zimmer Biomet's ZBH strategic efforts to bolster the Knee business are expected to drive growth in the upcoming quarters. The stabilization of the global musculoskeletal market looks promising for growth. Meanwhile, a dull macroeconomic scenario and unfavorable foreign exchange remain as concerns for ZBH’s operations.  

In the past year, this Zacks Rank #3 (Hold) company’s shares have lost 14.3% against 7.8% growth of the industry. The S&P 500 composite rose 23% during the same time frame.

The leading musculoskeletal healthcare company has a market capitalization of $21 billion. Zimmer Biomet beat on earnings in three of the trailing four quarters and missed in one, delivering an average surprise of 1.76%.

Factors Benefiting ZBH Stock

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. This was driven by favorable demographics and the growing utilization of musculoskeletal healthcare in emerging and under-penetrated developed markets. 

In line with this, in the third quarter of 2024, the company saw another positive quarter of year-over-year momentum in large joints, with the overall global Knees, Hips and S.E.T. business growing 7.3%, 6% and 2.8%, respectively, at the constant exchange rate.

Four-Pillar Strategy to Expand Knee Business: Zimmer Biomet has implemented four pillars inside its Knee business to drive pricing stability, mix benefits and competitive conversions. Firstly, the company is focusing on the combination of ROSA Robotic Platform and Persona Cementless Knee. In this regard, following its alliance with THINK Surgical, ZBH has become the only orthopedic company in the world that offers both a handheld CT scan-based system in the TMINI, as well as a simplified, CT scan-less robotic system in the current form factor of ROSA for total knee arthroplasty.

The second pillar is focused on Persona revision. This provides a meaningful conversion and mix opportunities inside the revision category. Under the third pillar, Zimmer Biomet plans to work on the overall shift of the company’s legacy knee systems to a fully rounded-out Persona portfolio. The fourth pillar focuses on the development of the world's first Smart Knee-Persona iQ. 

Factors Weighing on Zimmer Biomet Stock

Macroeconomic Concerns: The ongoing industry-wide trend of staffing shortages and supply chain-related hazards is denting growth for Zimmer Biomet. Added to this, the rise in central bank policy rates to fight inflation, along with the gradual withdrawal of fiscal policies amid high debt, continues to dent economic growth impacting the overall market situation for Zimmer Biomet. 

During the third quarter, the company incurred 3.9% increase in the cost of products sold (excluding intangible asset amortization) and a 3.1% rise in selling, general and administrative expenses. Adjusted gross margin indicated a contraction of 34 basis points while the adjusted operating margin contracted 18 bps in the quarter. 

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Exposed to Currency Movement: 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 U.S. Dollar relative to the Euro, the Japanese Yen, the Swiss Franc or other currencies are accordingly having adverse effects on the company’s results of operations. In the third quarter of 2024, Zimmer Biomet’s net sales were adversely affected by 0.1% changes in foreign exchange rates. 

ZBH Stock’s Estimate Trend

The Zacks Consensus Estimate for 2024 earnings per share has remained unchanged at $7.99 in the past 30 days.

The Zacks Consensus Estimate for 2024 revenues is pegged at $7.67 billion, indicating a 3.7% rise from the year-ago reported number.

Top MedTech Stocks

Some better-ranked stocks in the broader medical space are Veracyte VCYT, Omnicell OMCL and ResMed RMD.

Veracyte's estimated 2025 earnings growth rate is 65.8% compared with the industry’s 21.9%. Its shares have risen 49.2% in the past year compared with the industry’s 5.5% growth. VCYT’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 520.58%. 

VCYT carries a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Omnicell, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 3.7% compared with the industry’s 9.5%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 121.74%. OMCL’s shares have risen 15.2% against the industry’s 16.8% decline in the past year.

ResMed, carrying a Zacks Rank 2 at present, has an estimated earnings growth rate of 8.9% for fiscal 2025. Its shares have surged 33.4% compared with the industry’s 11.1% growth in the past year. RMD’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.41%. 

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