Orthopedic reconstructive products manufacturer, Zimmer Biomet Holdings, Inc. ZBH is expected to beat earnings when it reports its first-quarter 2017 financial numbers on Apr 27, before the opening bell. 

Last quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 1.42%. Also, it reported an average beat of 2.03% for the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Zimmer Biomet is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP:  Zimmer Biomet has an Earnings ESP of +1.42% as the Most Accurate estimate is $2.14 while the Zacks Consensus Estimate is pegged at $2.11. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Zimmer Biomet currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of Zimmer Biomet’s Zacks Rank #3 and a positive ESP make us reasonably confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

Zimmer Biomet Holdings, Inc. Price and EPS Surprise

Zimmer Biomet Holdings, Inc. Price and EPS Surprise | Zimmer Biomet Holdings, Inc. Quote

Zimmer Biomet is successfully executing its goal of strategic investments to further broaden and diversify its musculoskeletal portfolio. Lately, the company introduced more than 50 new clinical technology solutions and services.

Within its spine business, the company introduced differentiated technologies such as the Mobi-C cervical disc prosthesis. We are betting on G7 Acetabular System in its hip business. Recently, the company made expanded introduction of the G7 Dual Mobility Construct, the Taperloc Complete Hip Stem and the Arcos Femoral Revision System. These apart, the OsseoTi Porous Metal Technology and Vitamin E infused advanced bearing materials are also expected to contribute significantly to the company’s operating performance. All these commercial introductions should start generating top-line accretion from the first quarter itself.

Within S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma), we are extremely hopeful about the company’s recent addition of Cayenne Medical, which should strengthen Zimmer Biomet’s position in the growing market of sport medicine. This will also help the company address the $18 billion S.E.T. market.

We should also keep an eye on the company’s craniomaxillofacial and thoracic portfolio as it previously stated that, in 2017 it plans to introduce differentiated expansions within this space. Considering clinically relevant innovation and commercial excellence as key drivers of its growth, Zimmer Biomet also has plans to release Zimmer Biomet Signature Solutions this year. It is an integrated offering is the first suite of end-to-end services to enhance patient outcomes in musculoskeletal procedures while capturing pre-operative efficiencies and care episode cost savings.

Further, we are optimistic about the synergies from the $13.35 billion acquisition of Biomet. The buyout bolsters the company’s presence in the $10 billion global spine market by expanding its portfolio of innovative solutions and strengthening its hold in the fast growing cervical disc replacement market.

Regarding Zimmer Biomet’s net EBIT synergies, the company expects to realize cumulative target of $350 million by mid-2018 with approximately $310 million of cumulative net benefit achieved by year-end 2017. This reflects $85 million of incremental synergies in the year. This should start getting reflected from the first quarter.

The market assumption for 2017 also looks quite promising. The musculoskeletal markets are expected to grow approximately 3%, similar to 2016 with global market conditions remaining relatively stable.

However, factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations adversely impacted Zimmer Biomet’s sales during the quarter. With regard to price, the company forecasted a decline of approximately 2%, consistent with the range experienced over the last several years.

Other Stocks to Consider

Here are some other companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Becton, Dickinson and Company BDX has an Earnings ESP of +0.45% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Humana Inc. HUM has an Earnings ESP of +2.06% and a Zacks Rank #2.

Hill-Rom Holdings, Inc. HRC has an Earnings ESP of +1.27% and a Zacks Rank #2.

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Hill-Rom Holdings Inc (HRC): Free Stock Analysis Report
 
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