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Argus Drops Bullish Zimmer Biomet Thesis On Manufacturing, Supply, Sales Worries

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Argus Drops Bullish Zimmer Biomet Thesis On Manufacturing, Supply, Sales Worries
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A sell-side analyst cited product supply and manufacturing issues, as well as sales declines, in a Friday downgrade of medical device maker Zimmer Biomet Holdings Inc (NYSE: ZBH).

The Analyst 

Argus analyst David Toung downgraded Zimmer Biomet from Buy to Hold.

The Thesis

Zimmer has faced supply constraints for months, having previously estimated that it would not return to full inventory until the third quarter, Toung said in the note. (See the analyst's track record here.) 

Recent efforts to meet its customers’ needs have managed to push the timeline up to Q2, the analyst said. Yet a re-inspection by the FDA of Zimmer’s plant in North Warsaw, Indiana found new undisclosed quality control and compliance issues that must be addressed, Toung said; the North Warsaw facility is an asset that came with the Biomet merger.

In April, Zimmer reported sales were down 2.2 percent in the Americas and 3 percent in the EMA region.

“We are concerned that customers, who are typically orthopedic surgeons and the hospitals they work at, are feeling less confidence in Zimmer Biomet’s assurances to restore full inventory and are switching to other orthopedic suppliers,” Toung said. 

Price Action

Zimmer Biomet shares were up 0.3 percent at the time of publication Friday morning at $111.84. 

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Latest Ratings for ZBH

DateFirmActionFromTo
Nov 2018UBSInitiates Coverage OnBuy
Oct 2018JefferiesMaintainsBuyBuy
Oct 2018BarclaysMaintainsUnderweightUnderweight

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