Zimmer Biomet Holdings on Feb. 5 announced the spin-off of its spine and dental businesses into a new and independent publicly traded company.
The medical devices company expects the move to contribute 50 basis points to revenue growth over a five-year period. It is anticipated to be 125 basis points accretive to EBITDA and operating margins. The spin-off is also forecasted to accelerate Zimmer Biomet’s EPS growth on a pro forma basis.
Zimmer Biomet (ZBH) plans to close the transaction in the middle of next year. This spinoff is expected to tap into a $21 billion combined market for spine and dental devices like dental implants and motion preservation devices.
Zimmer Biomet CEO Bryan Hanson said, “As part of the third phase of ZB’s ongoing transformation, we are changing the complexion of our business through active portfolio management in order to accelerate growth and drive value creation. For Zimmer Biomet, the transaction is an important step toward shifting our portfolio mix to higher-growth markets where we have a clear path to leadership and right to win.”
Furthermore, Hanson added, “We believe NewCo will thrive as an independent company with prioritized capital allocation to pursue strategic growth opportunities and investment strategies in the large and growing Spine and Dental markets.”
The company also reported its 4Q and FY20 results on Feb. 5. Zimmer Biomet reported EPS of $2.11 in 4Q, beating analysts’ estimates of $2.06. The company’s 4Q revenues declined by 1.9% year-on-year to $2.09 billion versus analysts’ estimates of $2.08 billion. (See Zimmer Biomet Holdings stock analysis on TipRanks)
Following the spin-off and 4Q results announcement, Raymond James analyst Lawrence Keusch reiterated a Buy rating on the stock. Keusch wrote in a note to investors, “Phase 3 (portfolio management) of Zimmer’s ongoing transformation has gained visibility with the announcement of the decision to spin-off the dental and spine businesses, which is a positive.”
The rest of the Street is in line with Keusch’s view with a Strong Buy consensus rating. That’s based on 18 analysts recommending a Buy, 1 analyst suggesting a Hold, and 1 analyst recommending a Hold on the stock. The average analyst price target of $173 implies 8.2% upside potential to current levels.
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