On Dec 21, 2015, we issued an updated research report on Zimmer Biomet Holdings, Inc.ZBH - a major player in the musculoskeletal industry. The consolidated company formed post the merger of the legacy Zimmer Holdings and Biomet, recently reported a better-than-expected third-quarter 2015 with respect to earnings.
Net synergies from the $13.35 billion merger are currently anticipated to exceed $350 million in pre-tax by the end of the third year, post-transaction. The company also expects the merger to contribute 95 cents to $1.05 to adjusted earnings per share with $135 million of pre-tax, net synergy savings in the first year of the acquisition. Moreover, the growth rate of adjusted earnings per share beyond 2015 is likely to accelerate. According to the company, 2016 adjusted diluted earnings per share should grow in mid-teens or at a higher rate compared to the 2015 guidance.
Zimmer Biomet, post integration, will operate on a more comprehensive and diversified musculoskeletal portfolio commanding 17% market share and attractive cross selling opportunities. The combined company will be supported by a research and development (R&D) spending capability of approximately $360 million.
Moreover, it will immediately benefit from a joint portfolio of innovative solutions as well as efficiencies gained from merging the two companies' respective R&D efforts. According to Zimmer Biomet, the combined R&D spend will allow it to more rapidly bring to market a broad portfolio of musculoskeletal products, technologies and services over the longer term. The company also believes this acquisition is perfectly in line with its strategic framework that focuses on growth, operational excellence and prudent capital allocation.
However, macroeconomic uncertainties, pricing pressure and unfavorable currency adversely impacted sales in the reported quarter. As expected, currency headwind continued as a major threat accounting for the sluggish top line worldwide. The huge margin contraction also posed hurdles. Above all, the lowered 2015 revenue forecast indicates that the company does not expect a turnaround in the bleak scenario over the near term. In addition, intense competition in the orthopedic market continues to raise concerns.
The stock currently carries a Zacks Rank #3 (Hold).
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