We recently reiterated our Neutral recommendation on
), a leading orthopedic medical devices company. While we hold a
favorable view regarding the company's gradually improving volume
trend, several restructuring initiatives and diversion of savings
for further investment, we remain concerned about the pricing
scenario as it will be affected by the cost containment efforts
by governmental healthcare, local hospitals and health
Why at Neutral?
Zimmer's fourth-quarter adjusted earnings per share (EPS) of
$1.51 was ahead of the Zacks Consensus Estimate by a couple of
cents and the year-ago earnings of $1.36. Revenues were
$1.18 billion, up 2.1% at CER and ahead of the Zacks Consensus
Estimate of $1.175 billion.
Pricing pressure continues to remain a major headwind for the
company. The company experienced (1.9%) of pricing pressure in
the reported quarter. Based on recent trends, pricing for 2013 is
likely to remain at (2%). In the reported quarter, large joint
reconstructive pricing in the U.S. improved roughly 50 basis
points, offset by incremental pressure in certain key European
markets as anticipated. Moreover, currency headwinds in 2013 are
expected to reduce revenues by 0.5%.
However, we are encouraged to note improving sales in the
emerging markets like Asia-Pacific, which offers significant
growth opportunities for the company's reconstructive business.
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, Zimmer plans to continue with its global
Over the past 7 days, 1 of the 26 firms covering the stock
made a positive estimate revision for the current year, while
there was no downward revision. This implies that the firms still
hold similar views on the stock.
Other Stocks to Consider
While we prefer to remain on the sidelines on Zimmer, other
medical device stocks worth a look are
Acadia Healthcare Company, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ACADIA HEALTHCR (ACHC): Free Stock Analysis
CYBERONICS INC (CYBX): Free Stock Analysis
RESMED INC (RMD): Free Stock Analysis Report
ZIMMER HOLDINGS (ZMH): Free Stock Analysis
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