Zimmer Biomet's Q3 Miss-And-Cut Casts Doubt On The Bull Thesis

With Zimmer Biomet Holdings Inc ZBH reporting a third-quarter miss and slashing its guidance, Piper Jaffray downgraded shares of the Zimmer Biomet Holdings Inc ZBH. 

Analyst Matt O'Brien dowgraded Zimmer Biomet from Overweight to Neutral and lowered his price target from $135 to $110.

The shortfall in the quarter and the guide-down are due to the company's inability to improve manufacturing at its north campus, O'Brien said. (See O'Brien's track record here.)

The biopharma company said manufacturing capabilities were unlikely to be restored until the second quarter of 2018, according to Piper Jaffray.

The analyst expects the effects to linger throughout 2018.

The manufacturing issue will hamstring sales and earnings in 2018, O'Brien said. Even as the issue is sorted out, Zimmer faces strong competitors as it strives to recapture market share, the analyst said.

Despite the brand's strength, the markets where Zimmer competes are not growing quickly enough to yield a significant revenue snap back, according to Piper Jaffray.

The appointment of a well-respected CEO could give Zimmer an upside, O'Brien said. Any new leader should focus on fixing manufacturing, deleveraging the balance sheet and reaccelerating growth in tough markets, he said. Strong cash flow could create a floor for Zimmer, according to Piper Jaffray.

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