Zimmer

So, can you hear me okay?” so said Bryan C Hanson, kicking off a recent Morgan Stanley investor call. Behind ZOOM cameras, idling in board shorts and flip flops, the listeners murmured into their muted mics: yes, they could. Which was good news, as the CEO of Zimmer Biomet had a few things to say, a few things that put some flavour into their bullish Q2 earnings call of early August. Trends back then had been improving, and those trends have continued through late summer. Indeed, they have been “a little better” than he and his management team had forecast. As the economy heals Zimmer, alongside many other med-tech names, falls into the ‘opening up’ basket of stocks, sitting alongside a colourful mix of hotel operators, theme parks and other assorted types that had been felled by Covid, where revenues had all but collapsed. That procedures are now normalising suggests that investors might be more willing to revisit the fundamentals which, for Zimmer, are fundamentals that hum to the gentle buzz of turnaround. A turnaround driven by innovation and new products, and one that Hanson has quietly overseen since he took high office in late 2017. To give an example Hanson mentioned ROSA, a surgical robot that was recently released to market. “The demand on the ROSA side is like nothing I’ve ever seen before, and I’ve been in MedTech for a long time”. As ROSA and other new products have hit the market, Hanson said, leaning further into his microphone to make sure he was heard, the hope was that the top line can grow by a mid-single digit over time. This is likely to be further supported by some dynamic portfolio management, shovelling capital into growth areas, perhaps some M&A, and shedding lacklustre parts of the business. Mid-single digit growth, for those who have followed Zimmer, is a very big deal. Now there are risks. There are always risks in any turnaround. Management need to execute, they need buyers for unwanted assets, and they need the macro winds to remain benign. Covid remains at large, and will do until a vaccine is found. There is also the small matter of a US election, an event known for stirring up the vol market. And near-term numbers are going to be muddy, due to the backlog of pent-up demand. That said, from the tone of Hanson’s pitch on the call, the company has high aspirations. Consensus does not, hence the long term, ‘opening-up’ opportunity.