Zimmer Biomet Showing Long-Awaited Progress In Its Turnaround

Zimmer Biomet (ZBH) (“Zimmer”) has certainly had some issues since the acquisition of Biomet. Between integration challenges, manufacturing problems (including FDA warning letters), and slow underlying market growth, and other challenges to boot, the shares have dramatically lagged rival Stryker (SYK) and the medical device sector as a whole. The story over the past year is quite a bit different, though, as the shares have climbed more than 40%, beating even mighty Stryker, as CEO Bryan Hanson’s turnaround efforts have started to bear fruit.

From where I sit, the real question is the extent to which Zimmer can reignite organic revenue growth and drive better margins. Med-tech valuations tend to be driven by a blend of margins and revenue growth, and the latter is where Zimmer comes up a little short. Although I’m not particularly bullish on drivers like ROSA, Zimmer may yet have enough in the tank to beat revenue growth expectations and see further positive rerating. I’d call these shares more of a hold now, but one with improving underlying quality and upside if it can deliver that improved growth rate.

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Zimmer Biomet Showing Long-Awaited Progress In Its Turnaround