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Fundamental analysis: ZIMMER BIOMET HOLDINGS (#ZBH)

Zimmer Biomet Holdings, Inc., together with its subsidiaries, designs, manufactures and markets musculoskeletal health products and solutions in the Americas, Europe, the Middle East, Africa and Asia Pacific. The company was founded in 1927 and is headquartered in Warsaw, Indiana.

In the last 5 years, Zimmer Biomet Holdings has managed to significantly decrease the debt / equity ratio, from 115% to 60%. At the same time, the company went through a profound reorganization with the creation of new business lines.

To date, many analysts have reiterated the "buy" rating for #ZBH with an average of $ 195.00 and a high of $ 210.00.

⚡️Growth factors:

  • In recent years, Zimmer Biomet has undergone a major reorganization. In early February 2021, the company announced its intention to create a new company, NewCo, which specializes in the production of technologies for the treatment of the spine and teeth. Zimmer Biomet is expected to implement this plan by mid-2022. This spin-off will help increase revenue and adjusted earnings per share.

  • Revenue and margin growth is expected to accelerate as the volume of orthopedic services picks up.

  • The proliferation of the ROSA robotic platform will help the company gain ground in surgical departments and hospitals.

📖 Financial indicators:

  • Below Fair Value: ZBH ($ 164.47) is trading below our fair value estimate ($ 256.33)

  • Significantly Below Fair Value: ZBH is trading below fair value by more than 20%.

  • Earnings vs Savings Rate: ZBH's earnings growth forecast (18.6% per year) is higher than the savings rate (2%).

  • Earnings vs Market: ZBH's earnings (18.6% per year) are expected to grow faster than the US market (15.7% per year).

  • Quality Earnings: ZBH has a large one-time loss of $ 275.0 million impacting its financial results as of March 31, 2021.

  • Growing profit margin: ZBH's current net profit margins (8%) are higher than last year (4.8%).

  • Short-Term Liabilities: ZBH's short-term assets ($ 5.0 billion) outweigh its short-term liabilities ($ 2.1 billion).

  • Long-Term Liabilities: ZBH's short-term assets ($ 5.0 billion) do not cover its long-term liabilities ($ 9.5 billion).

  • Debt level: ZBH's debt / equity ratio (60.7%) is considered to be high.

  • Debt reduction: ZBH's debt / equity ratio has risen from 115.1% to 60.7% in the last 5 years

  • Interest coverage: ZBH's interest payments on its debt are well covered by EBIT (4.4x coverage).

Entry range: $ 160.00 - $ 165.00

Price target: $ 193.00

Stop loss: $ 145.00

OTB Global Investments

24 June 2021

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