Nomura Securities Starts Zimmer Biomet (ZBH) at Buy

Nomura Securities initiates coverage on Zimmer Biomet (NYSE: ZBH) with a Buy rating and a price target of $123.00.

Analyst Ed Ridley-Day commented, "We initiate coverage of ZBH with a Buy rating and USD 123 target price implying 24% upside (04/03/16). We believe that the stock’s de-rating and underperformance over the past 12 months (-10% vs US Medtech +3.6% and S&P500 -1.6%) has reflected the company’s relatively low OSG outlook vs the sector, wider concerns over orthopaedic pricing, and the dilution to return on capital resulting from the Biomet acquisition. However, we believe that ZBH should be able to deliver material cost synergies from the integration of Biomet and would also expect sales dis-synergies to moderate through 2016, before the company starts to see the benefit of leveraging its extensive network and new product launches to return to market growth in 2017.

"We believe that the mature growth profile of the orthopaedic industry and the increasing pricing headwinds that the sector faces, with global pricing c-2 to -3% on our analysis, are well understood by the investment community – and reflected in the company’s 11.6x FY17E P/E, a -32% discount to the US Medtech sector vs the stock’s 16% five-year average discount. Although we still assume a 25% discount to the sector in finding our target price, we would underline that confirmation that ZBH is reaccelerating organic growth towards that of its underlying markets (ie, >3%) would be very positive for the stock and lead us to reassess the company’s relative valuation."

For an analyst ratings summary and ratings history on Zimmer Biomet click here. For more ratings news on Zimmer Biomet click here.

Shares of Zimmer Biomet closed at $104.26 yesterday.

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