Zimmer Valuation Lowered

Zimmer Holdings (ZMH - Analyst Report) is a global leader in the design, development, manufacture, and marketing of reconstructive implants, and trauma and related orthopedic surgical products.

We believe the increase in unemployment will reduce the number of insured patients. As a result, procedures may be subject to delays, reducing revenue growth in the near-term. On the upcoming call, we are listening for whether the stronger dollar will reverse the tailwind revenues have received over the past few years, if efforts to increase financial leverage during the recent credit crisis may have met obstacles, and if efforts to control prices of commodity inputs (futures) may pressure gross margins as prices have since retreated.

Third quarter 2008 results were unimpressive as the company still struggles with difficult execution, regulatory, and pricing environments. We are maintaining our previous 2008 EPS estimates, which is still below management’s guidance. Stock repurchases continue to support estimated EPS, as was evidenced in the recent quarter.

We move ZMH’s valuation to the low end of the comparable P/E/G range, 1.0x 2008 P/E/G. The lower valuation against our reduced EPS estimate brings ZMH’s target price down to $52, or 13x our 2008 $4.01 EPS estimate.

Read the full analyst report on ZMH