Zimmer Biomet upgraded to neutral at BofA on EPS upside

BofA Securities has upgraded Zimmer Biomet (NYSE:ZBH) to neutral from underperform after its Q1 2023 EPS results beat and it raised its guidance.

The firm also upped its price target to $160 from $120 (~12% upside based on Tuesday's close).

Analyst Travis Steed said the company's EPS upside is likely to continue as backlog is just starting to ease "suggesting a longer tail on the revenue upside."

He added there is a $3B-$4B in potential backlog revenue for the hip and knee procedure market and "if ZBH is able to capture $1bn of this over the next few years it would suggest an additional $1.50+ in EPS and ZBH would be approaching $10 in total EPS in a few years."

Steed estimates Zimmet Biomet (ZBH) has a 35% share of the hips market and a 40% range for knees.

Regarding M&A, management has said that in the near term, it is focused on small- to mid-sized deals. "It’s clear to us ZBH wants to diversify and has the M&A fire power but it also seems clear ZBH will take time to execute and build even more credibility with investors before moving too big and too far afield."

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