Zimmer Upped to Neutral

We recently upped Zimmer Holdings, Inc. (ZMH – Analyst Report) to ‘Neutral’ with a target price of $61 based on a P/E of roughly 14.3x our fiscal 2010 EPS estimate of $4.27. Our decision on upgrading the stock was based on the company’s strong fourth quarter fiscal 2009 results.

Zimmer reported earnings per share of $1.12 in the fourth quarter, surpassing the Zacks Consensus Estimate of $1.08 and the year-ago earnings of $1. Total revenue in the fourth quarter increased 7.5% year over year in the reported quarter. Excluding a favorable foreign currency translation (FX), net sales increased 2.5% year over year.

Excluding Spine, growth was witnessed across all business segments. Reconstructive revenues increased 9% year over year to $844.9 million. Trauma and Orthopedic Surgical Products (OSP) revenues increased 11% and 15% year over year to $63.6 million and $79.1 million, respectively.

Dental revenue was flat year over year at $56.6 million. Spine sales declined 12% year over year to $63.1 million.
Zimmer reported a contraction in margins in the fourth quarter. Gross margin declined 120 basis points (bps) year over year to 75.2%. Operating margin declined 180 bps year over year to 21.5%.
Total revenue in fiscal 2009 decreased 0.6% year over year to $4,095.4 million. Excluding FX, net sales increased 0.9% year over year.

Zimmer is a global leader in the design, development, manufacture, and marketing of reconstructive implants, and trauma and related orthopedic surgical products. The company competes in the orthopedic market with players like Stryker Corporation (SYKAnalyst Report), Johnson & Johnson/DePuy (JNJ – Analyst Report), Wright Medical (WMGI – Analyst Report), Medtronic, Inc.(MDT – Analyst Report), Smith & Nephew (SNN – Snapshot Report), etc.


Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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