Zimmer Biomet Saw an Acceleration in Growth by End of 2022; No Change to Our Fair Value Estimate

Zimmer Biomet posted strong fourth-quarter results and ended the full year slightly ahead of our estimates on the top and bottom lines, after adjusting for a goodwill impairment. However, we're leaving our fair value estimate unchanged because this recent outperformance wasn't substantial enough to move the needle on our valuation, and our projections for 2023 remain bound by management's outlook. We think the recent progress Zimmer Biomet has seen in raising its growth profile partially reflects the benefit of its wide economic moat. The hefty switching costs that largely keep orthopedic surgeons in the fold bought Zimmer Biomet time to address the operational and regulatory turbulence that ensued following the integration of Biomet. Management used this time wisely to iron out supply chain and inventory management challenges and remediate its legacy Biomet plant, and importantly, to complete development and commercialize the Rosa robot. In turn, we think intangible assets and switching costs associated with Rosa should further reinforce that wide moat.