Expectations of softer markets for hip and knee implants prompted analysts at Leerink Swann to lower their sales and earnings expectations for Stryker Corp. (NYSE:SYK) and Zimmer Holdings (NYSE:ZMH).
The researchers said they adjusted their takes on companies’ the top and bottom lines "primarily to reflect more conservative hip/knee growth assumptions."
"In what will probably be a frequent theme this quarter for the med-tech industry as a whole – soft procedure volumes – we are trying to get a little ahead of the curve and we are lowering our 2H11 and 2012 [worldwide] hip/knee growth estimates," Rick Wise and Richard Newitter wrote in a note to investors. "Looking out over the next 12 – 18 months, we are inclined to take a more cautious view regarding a possible growth rebound in large joint procedure volumes given: 1) ongoing debt issues in Europe, 2) a still uncertain macroeconomic outlook in the US, and 3) the possibility global economic pressures lead to an extended period of lower demand for procedures that are typically ‘deferrable,’ such as hip/knee surgery."
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That means a revised third-quarter growth forecast of -0.2 percent, down from 0.9 percent. For the fourth quarter, the analysts wrote, "we expect this rate of growth will accelerate to +1.2%, helped by an easier [year-to-year] growth comparison." The reconstructive surgery market will post about 3 percent growth next year, not the 4 percent Wise and Newitter previously forecast.
For Stryker, the prediction is sales of about $8.34 billion this year, down about $20 million from the previous forecast, "though our 2011 EPS remains unchanged at $3.71 as we are now assuming a slightly lower 25.8% 2H11 tax rate," the analysts wrote. For 2012, they expect sales of about $8.95 billion (down from $9.0 billion) and EPS of $4.12 (down from $4.17).
Zimmer should post sales of about $4.47 billion, about $21 million off the prior mark, they wrote. Earnings per share are forecast to be $4.77 this year, down a penny, reflecting "the lower sales forecast partially offset by a lower SG&A expense assumption," they wrote. Sales and EPS are pegged at $4.76 billion and $5.30, respectively, compared with $4.73 billion and $5.37.
