While Memorial Production Partners LP (NASDAQ:MEMP) and Zimmer Biomet Holdings Inc (NYSE:ZBH) stocks are on the sharp descent after the former announced quarterly distribution suspension and the latter released third-quarter earnings that failed to impress, analysts from FBR and Canaccord see plenty of reason to chime in on these two volatile stocks.
While FBR heads to the sidelines on MEMP and slices the price target, no longer able to vouch for the shares with confidence on the heels of the distribution elimination, Canaccord remains bullish on ZBH’s long-term prospects while simultaneously reducing the price target. Let’s delve in deeper:
Memorial Production Partners LP
On Friday, October 28th, Memorial Production Partners announced it is suspending its quarterly distribution on its common units, sending shares collapsing 50%.
In reaction, FBR analyst Chad Mabry downgrades from an Outperform to a Market Perform rating on shares of MEMP while slashing the price target from $3.50 to $1.00, which represents a nearly 85% increase from where the shares last closed.
“The partnership’s lending group appears to be the culprit as it seems to be ensuring that every penny of future cash flow goes toward paydown of its credit facility. The draconian decision comes as a surprise as MEMP’s previously reduced distribution had 2016E and 2017E coverage of over 10x, supported by a hedge book valued at more than $500 million (or over $6/unit). In our view, yield is the primary reason to own MLPs, so we can no longer recommend units of MEMP in the absence of a distribution,” Mabry contends.
Meanwhile, in association, MEMP has reduced its borrowing base from $925 million to $740 million with a second reduction to take the base down to $720 million effective December 1st.
Additionally, the company announced it is exploring “strategic alternatives to strengthen its balance sheet and improve its capital structure,” which Mabry intends to observe “closely.”
Moving forward, the analyst anticipates forthcoming third-quarter earnings to be released, projecting adjusted EBITDA of $69.7 million, falling just under the Street’s $71.1 million.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Chad Mabry is ranked #4,016 out of 4,178 analysts. Mabry has a 35% success rate and faces a loss of 19.8% in his annual returns. When recommending MEMP, Mabry loses 49.2% in average profits on the stock.
TipRanks analytics indicate MEMP as a Sell. Based on 3 analysts polled in the last 3 months, 2 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $1.47, marking a 172% upside from where the shares last closed.
Zimmer Biomet Holdings Inc
Zimmer shares are dropping 13% after the company posted a third-quarter print that underwhelmed on revenues and a fourth-quarter guidance chop with regards to top-line growth.
However, despite “top-line weakness,” Canaccord analyst Kyle Rose deems this a consecutive robust quarterly performance with regards to EPS and reiterates a Buy rating on ZBH while lowering the price target from $150 to $130, which represents a 22% increase from where the shares last closed.
Rose explains, “Zimmer delivered Q3/16 results below CG/Street estimates as supply issues in the total joints business limited top-line growth. Specifically, management noted that higher than anticipated demand for key cross-selling products (Persona, Biomet hips, shoulders) led to a supply constraint.” Subsequently, third-quarter revenues saw a 1.0% impact and outlook indicates a 2.0% impact when looking ahead to the fourth quarter.
As far as the analyst evaluates the situation, “The issue is expected to lessen in the Q1/17 as new forecasting and inventory capacity comes online; however, Zimmer’s ability to take competitive share and return to market/above-market growth rates will be impacted in the near term.”
Overall, “While supply constraints in total joints have interrupted the near-term growth thesis, we believe the volatility intraday—down as much as ~14%—creates a buying opportunity for longer-term investors,” Rose concludes.
For 2016, pro forma revenue growth guidance expects 2.4% to 2.7%, lowered from a prior estimate of 3.0% to 3.5%. Another cut comes with non-GAAP EPS, trimmed from $7.90 to $8.00 to a range of $7.90 to $7.95.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, one-star analyst Kyle Rose is ranked #3,274 out of 4,178 analysts. Rose has a 38% success rate and faces a loss of 2.6% in his yearly returns. When recommending ZBH, Rose loses 1.3% in average profits on the stock.
TipRanks analytics demonstrate ZBH as a Strong Buy. Based on 7 analysts polled in the last 3 months, 6 rate a Buy on ZBH, while 1 maintains a Hold. The consensus price stands at $143.43, marking a 35% upside from where the stock is currently trading.