Q&A: Zimmer Holdings

I truly enjoy your blog! I started reading it after the article in Barron’s and find it very informative. I am a holder of ZMH and have been for about 2 years (I have added along the way with my highest cost position just over $81.00). I would love to get your thoughts on the name as it has been trading horribly (as you are well aware). I do not see a real material fundamental change in the business (obviously some pricing pressure but their margins are still very, VERY strong and pressure from the headline risk for the industry). What am I missing?

Thanks! I’m glad you like the blog.
As far as Zimmer Holdings (ZMH) goes first let me say, “I feel your pain.”
I have to agree with you. I have no idea what everyone’s complaining about. The stock is such a little drama queen. There’s been some questions about pricing, but there’s always been that.
If I’m missing something, I have no idea what it is. The financials are as good as ever. This summer, the company raised guidance for the year. Recently, Zimmer slightly lowered its sales guidance for the fourth quarter but it was fairly minor. In my book, the most important thing is the company gave good guidance for next year ($3.58 to $3.65 a share). That comes to a P/E ratio of 17, which is pretty darn good. On top of that, the company announced a major expansion earlier this month. Hurting companies don’t do that.
But here’s the thing. It’s not just Zimmer that’s down. I think the whole industry is getting punished for the sins of Stryker (SYK) and Wright Medical (WMGI). That’s just my theory. I don’t get why Biomet is down either. In fact, the reason for my optimism on Zimmer is that the stock has tracked Biomet so closely. That leads to think that this selling is not a company specific thing, but an industry-wide concern. The government is looking into industry pricing. Also, compared to the rest Zimmer has more exposure to knee and hip joints.
To be fair, Zimmer was too expensive at $90 a share. But $62! I’m as puzzled as you!

Posted by on November 25th, 2005 at 3:56 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.