Zimmer Biomet Holdings, Inc. ZBH is set to report second-quarter 2020 results on Aug 4, before market open.

In the last-reported quarter, the company’s earnings of $1.70 surpassed the Zacks Consensus Estimate by 22.3%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on all occasions, the average beat being 6.29%.

Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Through the second quarter, non-elective healthcare procedures were postponed largely to prioritize coronavirus-led damage control. This is likely to have significantly impacted the company’s revenues. Zimmer Biomet, during its first quarter earnings call in May, confirmed the month of April to be the most challenging one although the company expected business to recover after April.

The company is optimistic about improvement in procedure volumes in China since the latter half of March. This is likely to have driven the company’s Asia-Pacific revenues in the to-be-reported quarter. However, management was apprehensive about soft procedure volume and declining revenues in Japan, which was down in April but have been stable till May’s earnings call. Zimmer Biomet, during its first-quarter earnings call, said that it does not expect too many deferrals in Japan as not many surgeries have been deferred despite the restrictions in place.

In June, the company announced the addition of features to mymobility with Apple Watch, thus progressing in terms of remote patient care. This is likely to have boosted the company’s musculoskeletal healthcare business across the globe in the second quarter, thus driving the top line.

Dental product volumes are expected to have declined significantly in the second quarter due to widespread deferrals of procedures. This is likely to have affected revenues. Notably, the products were doing extremely well over the last few quarters on increased commercial and channel investments.

The S.E.T. business (comprising Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma), the company’s major focus area, too is expected to have put up a poor performance in the second quarter amid the mayhem. These procedures, being less selective by nature, are expected to have been impacted lesser in the second quarter. However, some adverse business impacts are expected due to widespread adoption of stay-at-home measures, thus leading to comparatively lesser procedures.

Within the Spine & CMF (Craniomaxillofacial) business, even if we don’t consider the COVID-19 impact, Zimmer Biomet has been witnessing growth deceleration in recent quarters, mainly due to unfavorable pricing. This along with the pandemic-led business disruption is likely to have significantly impacted the business.

We expect the company to have registered slightly better performances within its Hips and Knees product portfolios due to the nature of the business, which is non-elective and can be considered as emergency. Despite COVID-19 hurdles, product introductions like Avenir, supply stability and improved commercial execution are expected to have driven the Hip business in the quarter under review.

Core knee revenues are likely to have declined in the second quarter. Although the segment was strong prior to the pandemic and was driven by improved operational execution and continued positive launch of Persona Revision and ROSA, this is unlikely to have continued in the second quarter due to the unabated spread of the virus and related business disruptions.

Q2 Estimates

The Zacks Consensus Estimate for total revenues of $904.3 million suggests a 54.5% decline from the prior-year quarter’s reported figure. Also, the consensus estimate for loss per share is pegged at 75 cents against earnings of $1.93 in the year-ago quarter.

What Our Quantitative Model Predicts

Our proven model predicts an earnings beat for Zimmer Biomet this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Zacks Rank: The company currently carries a Zacks Rank #3.

Earnings ESP: Zimmer Biomet has an Earnings ESP of +36.94%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these also have the right combination of elements to beat on earnings this reporting cycle. All the stocks currently carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Integra LifeSciences Holdings Corporation IART has an Earnings ESP of +20.69%.

Exact Sciences Corporation EXAS has an Earnings ESP of +6.69%.

IDEXX Laboratories, Inc. IDXX has an Earnings ESP of +18.14%.

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