Prudential downgraded Zimmer Holdings (ZMH) to neutral from overweight.
Analyst Robert Faulkner says the maker of orthopedic devices beat his revenue and earnings estimates, but he doubts this will be enough to maintain the stock. He notes the company hit peak in EPS growth in the first quarter, and the top line indicates diminishing earnings upside. Medical-technology and healthcare stocks are being re-rated. The price-earnings-to-growth ratio contracted from 1.7 to under 1.5, which included orthopedic stocks.
Faulkner cuts Zimmer to neutral due to diminishing EPS upside and the implications of re-rating the sector for valuations. He sees little stock upside prior to the Presidential election, as he believes it's causing a flight from healthcare, as is deceleration in EPS growth in medical-technology names.