Buy or Sell Zimmer Biomet Stock?

Zimmer Biomet (ZBH) stock has fallen 15% during the past day, and is currently trading at $87.55. We believe there is a near-equal mix of good and bad in ZBH stock given its overall Moderate operating performance and financial condition. This is aligned with the stock’s Moderate valuation because of which we think it is Fairly Priced.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $17 Bil in market cap, Zimmer Biomet provides orthopaedic and dental reconstructive products, including sports medicine, biologics, extremities, trauma, and dental implants, serving musculoskeletal healthcare markets worldwide.

[1] Valuation Looks Moderate

This table highlights how ZBH is valued vs broader market. For more details see: ZBH Valuation Ratios

[2] Growth Is Moderate

• Zimmer Biomet has seen its top line grow at an average rate of 5.1% over the last 3 years
• Its revenues have grown 5.5% from $7.6 Bil to $8.0 Bil in the last 12 months
• Also, its quarterly revenues grew 9.7% to $2.0 Bil in the most recent quarter from $1.8 Bil a year ago.

This table highlights how ZBH is growing vs broader market. For more details see: ZBH Revenue Comparison

[3] Profitability Appears Moderate

• ZBH last 12 month operating income was $1.5 Bil representing operating margin of 18.7%
• With cash flow margin of 21.0%, it generated nearly $1.7 Bil in operating cash flow over this period
• For the same period, ZBH generated nearly $805 Mil in net income, suggesting net margin of about 10.1%

This table highlights how ZBH profitability vs broader market. For more details see: ZBH Operating Income Comparison

[4] Financial Stability Looks Strong

• ZBH Debt was $8.1 Bil at the end of the most recent quarter, while its current Market Cap is $17 Bil. This implies Debt-to-Equity Ratio of 46.8%
• ZBH Cash (including cash equivalents) makes up $1.3 Bil of $23 Bil in total Assets. This yields a Cash-to-Assets Ratio of 5.5%

[5] Downturn Resilience Is Very Weak

ZBH has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• ZBH stock fell 43.1% from a high of $178.61 on 29 April 2021 to $101.65 on 14 July 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $145.60 on 2 July 2023 , and currently trades at $87.55

 
2020 Covid Pandemic

• ZBH stock fell 49.7% from a high of $160.40 on 14 February 2020 to $80.63 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 13 January 2021

 
2008 Global Financial Crisis

• ZBH stock fell 65.0% from a high of $91.87 on 26 April 2007 to $32.13 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 6 December 2013

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read ZBH Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.