Company Reports

Zimmer Biomet posted decent first-quarter results that held few surprises, and the firm remains on track to meet our full-year expectations. As a result, we're leaving our $175 fair value estimate unchanged. Quarterly revenue grew 4% in constant currency year over year, which we view as respectable, especially considering the outsize strength that fueled the prior-year period. Quarterly adjusted operating margin closely matched our estimate for the year, and we were pleased to see pricing hold up relatively well. We saw little in the quarter to shift our thinking on Zimmer Biomet's wide economic moat and the switching costs that orthopedic surgeons face.

Zimmer Biomet posted fourth-quarter and full-year results that ran slightly ahead of our expectations on the top and bottom lines, but not enough to materially shift our fair value estimate. Additionally, we continue to hold tempered expectations for 2024, which fall slightly short of management’s outlook, as we expect utilization of the Rosa robot and penetration of the higher-margin cementless knees are unlikely to make a quantum leap this year but instead to increase steadily and more gradually over time. However, market skepticism about whether Zimmer Biomet can reach management’s 2024 goals seems to have translated into pressure on shares. Nonetheless, we saw little in the quarter to change our thinking on Zimmer Biomet’s wide economic moat.

Zimmer Biomet is the undisputed king of large joint reconstruction, and we expect aging baby boomers and improving technology suitable for younger patients to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-17, including integration issues, supply and inventory challenges, and quality concerns. The firm's efforts to turn around the firm have been admirable, though the pandemic slowed down progress. Now the firm is seeking to capitalize on the normalization of procedure volume and placements of its Rosa robot.

Wide-moat Zimmer Biomet posted solid third-quarter performance, and we’re holding steady on our fair value estimate, as the firm’s year-to-date results are tracking nearly on the nose with our full-year estimates. Although management adjusted its outlook slightly downward to account for foreign currency headwinds, our projections for the full year remain bounded by the new guidance.

We’re surprised and disappointed by the news that Bryan Hanson has stepped down as chief executive officer at Zimmer Biomet to take a comparable position at 3M’s impending healthcare spinoff. With former COO Ivan Tornos named as the new president and CEO of Zimmer Biomet and CFO Suky Upadhyay assuming additional responsibilities for global operations and supply chain, we don’t expect any dramatic changes for now and are holding steady on our fair value estimate. We also see little to shift our thinking on Zimmer Biomet’s wide economic moat, which primarily stems from strong switching costs among surgeons. Having said that, we recognize that cultural issues were a crucial factor contributing to how bumpy the integration of Biomet was, and Hanson played a critical role in healing some of those divisions and putting the combined firm on a healthier path.

Wide-moat Zimmer Biomet posted second-quarter results that largely fell in line with our expectations, and the firm remains on track to meet our full-year projections, though the market might have been disappointed with management comments that suggested tempered expectations for 2024. Nonetheless, we're leaving our fair value estimate and 2024 view unchanged for now. With solid quarterly topline growth of 6% in constant currency and adjusted operating margin of 27%, Zimmer Biomet is making progress on its precoronavirus benchmark in 2019 on both measures. We recognize that the firm remains in the early stages of expanding the installed base of Rosa robots, which is a key factor in setting the stage for increased penetration of the new cementless Persona OsseoTi Keel knee. Fortunately, solid demand for large joint replacement fueled by the backlog of patients should help these placements along through 2024.

Wide-moat Zimmer Biomet delivered first-quarter results that exceeded most expectations, especially on the top line, and we've slightly dialed up our projections for the full year following this strength. However, these adjustments weren't enough to materially shift our fair value estimate, especially as the firm's first-quarter costs tracked closely along with our expectations. Zimmer Biomet's quarterly revenue growth of 13% (in constant currency) was within spitting distance of Stryker's 14% year-over-year growth. Similar to the cardiac device makers, most of the large orthopedic implant competitors received a boost from the comparison with a soft prior-year period. But even after accounting for that, the device makers saw robust quarterly growth thanks to increased medical utilization, easing labor conditions at providers, and improving access to component parts. Though we think it's unlikely that Zimmer Biomet can maintain this 13% growth through the full year, the strong start does suggest our original low-single-digit revenue growth assumption in 2023 was likely too low. We now estimate full-year sales growth should fall closer to 4.7%, after adjusting for foreign exchange headwinds.

Zimmer Biomet posted strong fourth-quarter results and ended the full year slightly ahead of our estimates on the top and bottom lines, after adjusting for a goodwill impairment. However, we're leaving our fair value estimate unchanged because this recent outperformance wasn't substantial enough to move the needle on our valuation, and our projections for 2023 remain bound by management's outlook. We think the recent progress Zimmer Biomet has seen in raising its growth profile partially reflects the benefit of its wide economic moat. The hefty switching costs that largely keep orthopedic surgeons in the fold bought Zimmer Biomet time to address the operational and regulatory turbulence that ensued following the integration of Biomet. Management used this time wisely to iron out supply chain and inventory management challenges and remediate its legacy Biomet plant, and importantly, to complete development and commercialize the Rosa robot. In turn, we think intangible assets and switching costs associated with Rosa should further reinforce that wide moat.

With the addition of Biomet, Zimmer is the undisputed king of large joint reconstruction, by far. We expect favorable demographics, which include aging baby boomers and rising obesity, to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-2017, including integration issues, supply and inventory challenges, and quality concerns. New management's efforts to turn around the firm have been admirable, but the pandemic has put a damper on progress.

With the addition of Biomet, Zimmer is the undisputed king of large joint reconstruction, by far. We expect favorable demographics, which include aging baby boomers and rising obesity, to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-2017, including integration issues, supply and inventory challenges, and quality concerns. New management's efforts to turn around the firm have been admirable, but the pandemic has put a damper on progress.

Wide-moat Zimmer Biomet delivered strong third-quarter results that met our expectations on the top and bottom lines. Considering the solid demand for large joint replacement that we’ve seen in the third quarter and the company’s firm control over expenses, Zimmer Biomet might even slightly exceed our full-year projections given the fourth quarter tends to be seasonally stronger. However, adjusting our model for that potential outcome does not materially shift our fair value estimate. Despite the unfavorable foreign exchange, the firm racked up quarterly revenue growth of 5% in constant currency, which is roughly the level of normalized medtech growth. That’s respectable for a firm that has generally been lagging industry growth. Though this quarter might be a blip, we do expect Zimmer Biomet to move toward faster growth in the 2023-25 timeframe thanks to the improvements in its technology, pioneering of new markets slightly adjacent to its traditional strengths, and a focus on execution.

Zimmer Biomet delivered strong second-quarter results that exceeded FactSet consensus on the top and bottom lines, but it remains on track to meet our full-year estimates, and we’re leaving our fair value estimate unchanged. The shares remain attractively undervalued, from our perspective. While this year's second quarter posed challenges, considering the rebound seen in the prior-year period thanks to widespread COVID-19 vaccination (especially in the United States) that unleashed a wave of delayed procedures, Zimmer Biomet nevertheless posted very respectable results. We were particularly pleased to see U.S. knees increase 5%, on par with Stryker’s domestic knees growth. We think this is nothing to sneeze at, considering Stryker has been consistently leading the orthopedic pack on knee sales by a significant margin for the last five years. We saw little in the quarter to change our thinking on Zimmer Biomet’s wide economic moat. Indeed, we contend it is the high switching costs that have shielded the firm and bought it time to navigate the operational, regulatory, and management challenges that first emerged in late 2016 to get the business moving in the right direction again.

Zimmer Biomet delivered first-quarter results that slightly exceeded our expectations on the top line, but this was offset by a slight lag compared with our estimates for the bottom line. As a result, we’re leaving our fair value estimate unchanged. While foreign exchange and inflationary headwinds tugged at Zimmer Biomet in the quarter, the firm’s 7% revenue growth year over year was solid. As with other medical device makers, Zimmer Biomet’s business was also buffeted by the rise and fall of the omicron variant in early 2022. However, we see little to suggest that underlying demand has changed, or that Zimmer Biomet’s wide economic moat has been hurt. We were reassured by management’s comments that procedure cancellation rates by the end of the first quarter were commensurate with prepandemic levels.

With the addition of Biomet, Zimmer is the undisputed king of large joint reconstruction, by far. We expect favorable demographics, which include aging baby boomers and rising obesity, to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-2017, including integration issues, supply and inventory challenges, and quality concerns. New management's efforts to turn around the firm have been admirable, but the pandemic has put a damper on progress.

With the addition of Biomet, Zimmer is the undisputed king of large joint reconstruction, by far. We expect favorable demographics, which include aging baby boomers and rising obesity, to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-2017, including integration issues, supply and inventory challenges, and quality concerns. New management's efforts to turn around the firm have been admirable, but the pandemic has put a damper on progress.

Zimmer Biomet’s fourth-quarter results fell somewhat short of our expectations on the top and bottom lines, and we plan to give a moderate haircut to our fair value estimate, especially considering the omicron surge that led to procedure delays and cancelations in December will also put pressure on the quarter. With the latest variant taxing hospital capacity in some U.S. geographic markets, we’ve heard anecdotally that some orthopedic surgeons have been postponing large joint replacement patients because there’s little space for non-pandemic patients in the hospital for overnight stays. Despite this most recent swell in COVID-19, we think Zimmer Biomet’s wide moat remains solid, and we don’t think surgeon switching costs have deteriorated. Nonetheless, we think the pandemic shock and its related effects on healthcare workers, input and transportation costs, and hospital capacity will further slow Zimmer Biomet’s turnaround.

With the addition of smaller competitor Biomet, Zimmer is the undisputed king of large joint reconstruction, by far. We expect favorable demographics, which include aging baby boomers and rising obesity, to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-2017, including integration issues, supply and inventory challenges, and quality concerns that have caught the attention of the U.S. Food and Drug Administration. But new management has tackled these issues, and the firm is poised to ramp up its growth.

Zimmer Biomet posted decent third-quarter results that leave the firm on track to meet our tempered expectations for the full year. We’re leaving our fair value estimate intact, as the slight tweaks to our near-term assumptions for declines in pricing and the impending impact of the Chinese volume-based procurement (VBP) plan for 2022 weren’t enough to materially move the needle on our valuation. The pandemic remains the most significant near-term factor, in our minds, as we’ve seen elective surgeries delayed each time viral transmission spikes. While the delta variant clearly damped third-quarter sales, we’re more focused on management’s comment that procedure volume in the fourth quarter, thus far, hasn’t risen more, as is normally expected with typical seasonality. We had originally expected a stronger bounceback in the fourth quarter, with the return of some postponed procedures adding incrementally to the usual seasonal rise. But, based on the firm’s initial view into procedures in October, we’ve slightly trimmed our projections for knees and hips for 2021 as well as 2022. In all the movement on volume and price through the quarter, we haven’t seen anything to change our opinion of Zimmer Biomet’s wide economic moat and the surgeon switching costs that support it.

With the addition of smaller competitor Biomet, Zimmer is the undisputed king of large joint reconstruction, by far. We expect favorable demographics, which include aging baby boomers and rising obesity, to fuel solid demand for large-joint replacement that should offset price declines. However, Zimmer stumbled into a series of pitfalls in 2016-2017, including integration issues, supply and inventory challenges, and quality concerns that have caught the attention of the U.S. Food and Drug Administration. But new management has tackled these issues, and the firm is poised to ramp up its growth.

Zimmer Biomet reported second-quarter results that were somewhat disappointing, though we’re leaving our fair value estimate unchanged as our projections for the firm’s recovery in 2021 remain below management’s outlook. While quarterly top-line performance trailed the strength seen at rival Stryker, Zimmer Biomet still managed to keep a tight rein on costs, which puts it on track to meet our full-year projections. It’s not entirely clear to us what factors might explain these results, as the firm seems to performing well on an operational level. We’re also uncertain about management’s discussion of the unevenness of large joint replacement patients returning for treatment. It seems that this would be a category issue that would also affect Stryker. Nonetheless, we saw nothing in this quarter that would suggest Zimmer Biomet’s wide economic moat has been diminished or impaired in any way. Surgeon switching costs and Zimmer Biomet’s intangible assets haven’t appreciably changed.