We recently reiterated our Neutral recommendation on leading
orthopedic medical devices company
). We are positive on the gradually stabilizing global
musculoskeletal market, better volume environment, several
restructuring initiatives and diversion of savings for further
investment. Yet, at the same time, we are concerned about the
pricing scenario as it is likely to be affected by the
cost-containment efforts undertaken by governmental healthcare,
local hospitals and health systems.
Zimmer's third-quarter 2013 adjusted EPS of $1.25 surpassed
the Zacks Consensus Estimate by a penny and the year-ago number
by 8.7%. Revenues amounted to $1,074 million, up 6.7% at CER and
ahead of the $1,063 million mark.
The outperformance came on the back of gradual stability in
the global musculoskeletal market with decent sales growth in
certain geographic regions. This growth was also accompanied by
new product launches, contributions from new product categories
recently ventured into, and the focused execution of the
company's global sales teams. With its expectation of markets to
stabilize further, Zimmer is confident about its differentiated
portfolio that comprises both premium and value-based
Moreover, higher volumes of new products and manufacturing
process improvements were major positives.During the reported
quarter, increased volume and changes in product mix contributed
9.1 and 4.3 percentage points of year-over-year knee and hip
sales growth, respectively. In addition, volume trend in the
reconstructive market is expected to improve, with procedural
deferrals diminishing over time.
Meanwhile, Zimmer is on its way to achieve market growth based
on its strong product portfolio and aging demographics. In order
to streamline its business, it plans to continue with its global
However, pricing pressure continues to remain a major headwind
for the company. In the reported quarter, currency impacted 1.9%
(equal to $ 20 million) of revenues.The negative currency impact
from the Japanese yen and the Australian dollar denominated
revenues was partially offset by the favorable currency impact of
the company's Euro denominated revenues.
Other Stocks to Consider
While we prefer to remain on the sidelines regarding Zimmer,
other medical device stocks worth a look are
Align Technologies Inc.,
, Cardinal Health, Inc.
Mindray Medical International Limited
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ALIGN TECH INC (ALGN): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
MINDRAY MEDICAL (MR): Free Stock Analysis
ZIMMER HOLDINGS (ZMH): Free Stock Analysis
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