On Aug 8, 2014, we issued an updated research report on
Zimmer Holdings, Inc.
) - a major player in the musculoskeletal industry. While Zimmer
reported a mixed fiscal second quarter with a bottom-line beat and
a top-line miss, we are optimistic about the impending $13.35
billion acquisition of Biomet, successful completion of which will
help the company better capture the global $45 billion
Zimmer's second-quarter 2014 adjusted earnings per share of
$1.49 edged past the Zacks Consensus Estimate by a penny and were
up 4.2% year over year. Revenues grossed $1.16 billion, up 0.9% at
CER, but missed the $1.20 billion mark. The year-over-year growth
came on the back of a more favorable mix of products with decent
sales growth in all geographies (barring Americas).
Despite challenging market conditions in the form of pricing
pressure (the company's top-line growth in the reported quarter was
partially offset by continued pricing pressure, mostly in the
Americas and Europe operating segments), the reported quarter
witnessed gradual stability in the global musculoskeletal market
with better-than-expected sales growth in certain geographies
banking on improved procedural volume. While musculoskeletal
markets were healthy in the Asia Pacific (sales grew by 6.9% at
constant exchange rate or CER) and Europe (up 4.9%), the same
proved disappointing in the Americas (down 2.7%).
We are impressed with the strong strategic and financial goals
which the combined entity expects to reach after the closure of the
Biomet deal. Together the combined company will be more competitive
in knee and hip franchises with a diverse revenue base to increase
scale in the faster growing markets in adjacent categories.
However, pressure on margin continues. In addition, intense
competition in the orthopedic market and currency headwind continue
to pose major threats. The stock currently carries a Zacks Rank #4
Other Stocks to Consider
Some better-ranked medical products stocks that warrant a look
are Medtronic, Inc. (
), Abaxis, Inc. (
) and NuVasive, Inc. (
). All of these three stocks carry a Zacks Rank #2 (Buy).
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