Unveiling Zimmer Biomet Holdings (ZBH)'s Value: Is It Really Priced Right? A Comprehensive Guide
Today, Zimmer Biomet Holdings Inc (NYSE:ZBH) experienced a daily loss of -4.38%, extending its 3-month loss to -21.1%. Despite this, the company's Earnings Per Share (EPS) stands at 2.41. This raises the question: is the stock modestly undervalued? In this analysis, we will explore this question and provide a comprehensive valuation analysis of Zimmer Biomet Holdings Inc (NYSE:ZBH).
Company Introduction
Zimmer Biomet Holdings Inc (NYSE:ZBH) is a leading manufacturer and marketer of orthopedic reconstructive implants, as well as supplies and surgical equipment for orthopedic surgery. The company's successful acquisitions of Centerpulse in 2003 and Biomet in 2015 have positioned it as a market leader in the United States, Europe, and Japan. Zimmer Biomet Holdings Inc (NYSE:ZBH) derives approximately 70% of its total revenue from sales of large joints, while the remaining quarter comes from extremities, trauma, and related surgical products.
At its current price of $107.28 per share, Zimmer Biomet Holdings has a market cap of $22.40 billion. Interestingly, the GF Value, an estimation of the fair value of the stock, stands at $139.11. This discrepancy between the stock price and the GF Value suggests that Zimmer Biomet Holdings (NYSE:ZBH) may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
The GF Value Line provides a visual representation of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Zimmer Biomet Holdings (NYSE:ZBH), the stock appears to be modestly undervalued.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Zimmer Biomet Holdings has a cash-to-debt ratio of 0.05, ranking worse than 96.16% of 833 companies in the Medical Devices & Instruments industry. Based on this, GuruFocus ranks Zimmer Biomet Holdings's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Zimmer Biomet Holdings has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $7.20 billion and Earnings Per Share (EPS) of $2.41. Its operating margin is 18.69%, ranking better than 82.53% of companies in the Medical Devices & Instruments industry. GuruFocus ranks the profitability of Zimmer Biomet Holdings at 7 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Zimmer Biomet Holdings is -5.1%, ranking worse than 78.54% of companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth rate is -11.8%, ranking worse than 78.49% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Zimmer Biomet Holdings's ROIC is 5.05, and its WACC is 7.61.
Conclusion
In conclusion, the stock of Zimmer Biomet Holdings (NYSE:ZBH) gives every indication of being modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 78.49% of companies in the Medical Devices & Instruments industry. To learn more about Zimmer Biomet Holdings stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
