Zimmer Biomet Sees Slower Recovery in Large Joints During Q2; No Change to Our Fair Value Estimate

Zimmer Biomet reported second-quarter results that were somewhat disappointing, though we’re leaving our fair value estimate unchanged as our projections for the firm’s recovery in 2021 remain below management’s outlook. While quarterly top-line performance trailed the strength seen at rival Stryker, Zimmer Biomet still managed to keep a tight rein on costs, which puts it on track to meet our full-year projections. It’s not entirely clear to us what factors might explain these results, as the firm seems to performing well on an operational level. We’re also uncertain about management’s discussion of the unevenness of large joint replacement patients returning for treatment. It seems that this would be a category issue that would also affect Stryker. Nonetheless, we saw nothing in this quarter that would suggest Zimmer Biomet’s wide economic moat has been diminished or impaired in any way. Surgeon switching costs and Zimmer Biomet’s intangible assets haven’t appreciably changed.