Zimmer Biomet Shares Are Better Positioned To Outperform; Stifel Upgrades

With a new and highly-experienced CEO at the helm, medical device maker Zimmer Biomet Holdings Inc ZBH can gradually stabilize and, over time re-accelerate growth, an analyst at Stifel said.

The Analyst

Stifel analyst Rick Wise upgraded shares of Zimmer Biomet from Hold to Buy, and increased his price target from $120 to $168.

The Thesis

The 2018-2020 numbers for Zimmer Biomet will move lower initially, given the time a turnaround is likely to take, but should represent a clearing event, Wise said in a note. The analyst expects improving sequential top-line performance in 2018, with sales growth moving back to market-like levels of growth in 2019.

The pathway to 10 percent earnings per share growth will become more visible in 2020, Wise said.

On valuation, the analyst noted shares have underperformed over the past six months despite positive sell-side sentiment. Shares still trade at a discount to peers.

Stifel said the company will be in an extremely important product cycle in the second-half of 2018 and 2019, driving share recapture opportunities, and potentially mitigating recent large-joint pricing headwinds.

"While ZBH is a turnaround story, it is a unique one rooted in solid current -- albeit somewhat depressed – profitability," Wise added.

Stifel sees the resolution of Warsaw North Campus FDA issues, full hip/knee/extremity supply, rebuilding of sales-team and customer confidence, and deleveraging even while investing for growth as critical issues confronting the company.