Zimmer

We were talking about mid-single digit growth rates up until the time the pandemic hit” so said Bryan C. Hanson, CEO of Zimmer Biomet, on a recent call with analysts. This would have been, he went on, perhaps staring wistfully into space, “the best growth rate we’ve been able to present on our core business in the history of the company.” In the end, the pandemic hit and Zimmer, whose main lines of business involve elective surgery in hips and knees, got crushed as hospitals directed all available resource to fighting the virus. For those wanting a new hip, or a new knee, well, they’d have to wait. For those analysts listening to Hanson who had long seen the potential in Zimmer, the taste was a bitter one. So close to an acceleration in the top line and a re-rating in the shares; and yet, so far. The good news for those analysts, then, more so in the context of the innovative products flowing out of R&D, is that a recovery is underway. And a sharp one too. As hospitals have opened up, it is becoming clear that the pick-up in activity is a lot better than what companies were talking about during the earnings calls of April and May. A lot better from China, through Asia Pacific and, latterly, the US. “I would say,” said Hanson, “that the recoveries, particularly in the US, but everywhere is happening faster than expected”. The thing with knees and hips, is that if you need a new one, you need a new one. Very few procedures will be lost forever. And when those procedures come back, and these are very profitable procedures for hospitals, those analysts can once again hope to see Zimmer print a mid-single digit growth rate. A growth rate which, as Hanson said, would be the best growth rate in the history of the company and potentially put some zizz into a sedate looking multiple.