Zimmer Biomet Holdings, Inc. (ZBH) in Warsaw, Ind., designs, manufactures, and markets musculoskeletal healthcare products and solutions in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. ZBH’s shares have slumped 24.3% in price over the past year and 3.9% year-to-date to close yesterday’s trading session at $122.14. They are currently trading 32.3% below their 52-week high of $180.36.

Furthermore, the stock tumbled last week after the company fell short of fourth-quarter revenue and earnings estimates. According the ZBH, the pandemic impacted the company’s performance as patients delayed their health procedures to avoid Covid exposures and staff shortages in hospitals. “As we expected, the ongoing COVID pandemic continued to pressure our business in Q4. The quarter was particularly impacted throughout December due to hospital staffing shortages and the omicron variant surge worldwide,” said Bryan Hanson, Chairman, President, and CEO of ZBH.

In addition, the company noted that its net sales and earnings metrics in the quarter were negatively impacted by China volume-based procurement (“VBP”) in Knees, Hips, and S.E.T. product categories due to a combination of variables in advance of VBP implementation. Although the negative impact was in line with expectations in the Knees and Hips segments, it was not anticipated in the S.E.T. product category. Regarding S.E.T., the nationalization of the provincial Trauma products tender was announced on January 24, 2022, by the Chinese government. The COVID challenges persisted in January, and the company expects those will continue throughout the year. Moreover, it anticipates that the current quarter will likely be more pressured than the fourth quarter.

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Here’s what could shape ZBH’s performance in the near term:

Bleak Financials

ZBH’s net sales decreased 2.3% year-over-year to $2.04 billion in the fiscal fourth quarter ended December 31. Its revenues missed the consensus estimate by $28.63 million. Its operating profit declined 67.1% from its year-ago value to $79.10 million. The company’s net earnings came in at a negative $84 million, indicating a decline of 125.2% year-over-year, while its EPS declined 125.2% year-over-year to negative $0.40. Its adjusted EPS declined 7.6% year-over-year to $1.95, missing the $1.98 consensus estimate. In addition, for the year ended Dec. 31, 2021, ZBH’s cash and cash equivalents balance stood at $478.50 million, down significantly from its $802.10 million year-ago value.

Bearish Sentiments

Both revenue and EPS estimates were cut as analysts factored in the latest outlook for the business, in anticipation of a decline in business conditions. Analysts expect ZBH’s revenues to decrease 9.1% in the current quarter and 14.8% in the following quarter. The company’s revenues are expected to decrease 12.5% year-over-year to $6.86 billion in the current year. Also, ZBH’s EPS is expected to decline 17% in the current quarter, 12.6% in the next quarter, and 10% in the current year.

Consensus Rating and Price Target Indicate Slight Upside

Among the 19 Wall Street analysts that rated ZBH, eight rated it Buy, 10 rated it a Hold, and one rated it Sell. The 12-month median price target of $128 indicates a 4.8% potential upside. The price targets range from a low of $110 to a high of $145.

Lower-Than-Industry Valuation

In terms of forward EV/Sales, ZBH is currently trading at 4.52x, which is 4.5% lower than the 4.73x industry average. Its Price/Sales, and Price/Book multiples of 3.56 and 1.79, respectively, are 36.1% and 42.5% lower than the industry averages. Also, its 11.41 forward Price/Cash Flow is 34.6% lower than the 17.44 industry average.

POWR Ratings Reflect Uncertain Prospects

ZBH has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Stability, consistent with its 1.22 beta.

ZBH has a D grade for Sentiment. Bearish analyst sentiment about the stock justifies this grade.

Of the 167 stocks in the  Medical - Devices & Equipment industry, ZBH is ranked #60.

Beyond what I have stated above, one can also view ZBH’s grades for Quality, Growth, Momentum, and Value here.

View the top-rated stocks in the Medical - Devices & Equipment industry here.

Bottom Line

The company intends to spin off its Dental and Spine businesses into a standalone, publicly traded company, Zamia. The strategic move is expected to close on March 1, 2022. However, ZBH’s anticipation of continuing challenges concerning staffing and the pandemic could keep investors anxious about its near-term prospects. Also, considering the bearish sentiment around the stock, we think it could be wise to wait for the company to display significant turnaround capability before investing in the stock.

How Does Zimmer Biomet Holdings, Inc. (ZBH) Stack Up Against its Peers?

While ZBH has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, Fonar Corporation (FONR), ICU Medical, Inc. (ICUI), and Electromed, Inc. (ELMD), which have an A (Strong Buy) rating.

Click here to checkout our Healthcare Sector Report for 2022

ZBH shares were unchanged in premarket trading Wednesday. Year-to-date, ZBH has declined -3.86%, versus a -6.08% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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