Biotech Values

[DewDiligence]

ZMH 4Q10 Results, 2011 Outlook Beat Estimates

[Although the orthopedic-implant business is growing at nowhere near the rate of the past decade (#msg-2351794, #msg-30016787), it’s doing better than many investors expected, evidently. There’s a notable positive change since ZMH reported its 3Q10 results in October (#msg-56060621); ZMH is now trading close to its 12-month high, but is still about 40% below it’s all-time high of $94 reached in 2007. Based on the new 2011 non-GAAP EPS guidance of $4.60-4.80 (excluding $75-80M of restructuring charges), ZMH has a forward P/E of 12.5x, which is not exactly expensive. (See #msg-38952075 for a related story.)]

http://www.reuters.com/article/idUSN2724464320110127?feedType=RSS&feedName=rbssHealthcareNews&rpc=43

›Thu Jan 27, 2011 12:34pm EST
By Debra Sherman

CHICAGO, Jan 27 (Reuters) - Orthopedic device maker Zimmer Holdings Inc (ZMH) reported higher-than-expected quarterly earnings and issued a strong forecast for 2011, driving its shares to an eight-month high.

Zimmer said sales increased in every segment of its business in the fourth quarter, rising 2.5 percent overall to $1.13 billion.

In a conference call with analysts, management attributed much of the improvement in hip implant sales to a new product launch and market share gains.

"Zimmer's new product story appears to be finally playing out," Bernstein Research analyst Derrick Sung wrote in a note to clients.

Sung, who has an "outperform" rating on the stock, sees pent-up demand and improved consumer sentiment driving Zimmer shares higher.

Leerink Swann analyst Rick Wise said, "People expected bad news, but after an extended challenging period, it seems like Zimmer is on more solid ground, the cost-cutting efforts are kicking in, and they're launching new products. They are gaining traction."

The company, which also makes surgical instruments and dental implants, said it expects 2011 sales to increase 2 percent to 4 percent.

It forecast 2011 net earnings per share of $4.25 to $4.45 after a one-time pretax charge of $75 million to $80 million. Excluding one-time items, it forecast 2011 earnings per share of $4.60 to $4.80. Analysts on average expect $4.66.

Fourth-quarter earnings, excluding special items, were $1.27 per share. Analysts' average forecast was $1.19, according to Thomson Reuters I/B/E/S.

Prices of implants, which declined about 1 percent last year as demand for nonessential medical procedures dropped, are likely to remain close to 2010 levels unless the economy improves, Chief Executive Officer David Dvorak told the conference call.

Zimmer is assuming modest global economic growth and relatively stable employment, he said.

"However, a significant improvement in employment levels, especially in the U.S., and a related step-up in enrollment in private health plans would lead us to take a more bullish view toward market growth," he added.‹