Zimmer Biomet Delivers Impressive Second-Quarter Results; Holding Steady on Our Fair Value Estimate

Zimmer Biomet delivered strong second-quarter results that exceeded FactSet consensus on the top and bottom lines, but it remains on track to meet our full-year estimates, and we’re leaving our fair value estimate unchanged. The shares remain attractively undervalued, from our perspective. While this year's second quarter posed challenges, considering the rebound seen in the prior-year period thanks to widespread COVID-19 vaccination (especially in the United States) that unleashed a wave of delayed procedures, Zimmer Biomet nevertheless posted very respectable results. We were particularly pleased to see U.S. knees increase 5%, on par with Stryker’s domestic knees growth. We think this is nothing to sneeze at, considering Stryker has been consistently leading the orthopedic pack on knee sales by a significant margin for the last five years. We saw little in the quarter to change our thinking on Zimmer Biomet’s wide economic moat. Indeed, we contend it is the high switching costs that have shielded the firm and bought it time to navigate the operational, regulatory, and management challenges that first emerged in late 2016 to get the business moving in the right direction again.