Goldman Sachs Lifts Price Target For Zimmer Holdings (ZMH)
Friday, January 27, 2022 9:36 AM

Goldman Sachs has increased its price target for Zimmer Holdings (ZMH) to $51 from $48 on profit earning ratio and DCF update due to increased EPS projections. However, the brokerage maintained its Sell rating on the shares of the company as the fundamental outlook is challenging amidst weak core end-markets.

This follows after the company reported fourth quarter earnings of $1.36 a share that came in two cents a share above Goldman Sachs and consensus estimate. Revenue of $1.17 billion was also 0.8 percent ahead of its projection and 0.5 percent more than the Street forecast.

For the year 2012, Zimmer guided adjusted EPS of 5.20 - $5.40 compared to Goldman Sachs new estimate of $5.24. Sales are projected to see 2 – 4 percent growth in constant currency and 1 – 3 percent on a reported basis compared to Goldman Sachs projection of 2.2 percent and 0.8 percent respectively.

The brokerage acknowledged that the company is managing EPS on tough operating conditions. This along with the setup into fourth quarter drove 4 percentage points of outperformance versus the S&P 500. Still, analyst David Roman maintain cautious view on the company’s ability to grow the top line at management’s 2 – 4 percent target. This implies acceleration in volume and mix. Assuming that price pressure remains at fourth quarter levels, i.e. minus 1.6 percent, 2012 volume/mix would have to grow 3.6 – 5.6 percent to achieve FX-neutral guidance.

Goldman Sachs noted that fourth quarter represented a 70 basis point step up in pricing pressure and would not be surprised if the trend continues. The brokerage sees the risk relative to guidance as being to the downside in the absence of a marked recovery in end-user market dynamics. Yet, the analyst raised his EPS on restructuring savings and share buy back activity.

For 2012, Goldman Sachs lifted EPS estimation to $4.80 from $4.77, for 2013 to $5.24 from $5.08 and for 2014 to $5.50 from $5.29.

The brokerage listed key risks as faster than expected recovery in procedure volumes, accretive use of cash and higher than expected operating leverage.