Zimmer Biomet Hit Hard by COVID-19 and China in the Fourth Quarter

Zimmer Biomet’s fourth-quarter results fell somewhat short of our expectations on the top and bottom lines, and we plan to give a moderate haircut to our fair value estimate, especially considering the omicron surge that led to procedure delays and cancelations in December will also put pressure on the quarter. With the latest variant taxing hospital capacity in some U.S. geographic markets, we’ve heard anecdotally that some orthopedic surgeons have been postponing large joint replacement patients because there’s little space for non-pandemic patients in the hospital for overnight stays. Despite this most recent swell in COVID-19, we think Zimmer Biomet’s wide moat remains solid, and we don’t think surgeon switching costs have deteriorated. Nonetheless, we think the pandemic shock and its related effects on healthcare workers, input and transportation costs, and hospital capacity will further slow Zimmer Biomet’s turnaround.