Zimmer Biomet Holdings, Inc.

Zimmer Biomet Holdings, Inc. (NYSE: ZBH) develops, manufactures, and distributes orthopedic reconstructive products, sports medicine, trauma products, spine, craniomaxillofacial, and thoracic (CMFT) products, and other dental implants. ZBH products and treatments aid in treating patients with bone, joint, or supporting soft tissue illnesses or injuries.

Why should Investors make an Exit?

• Long Cash Conversion Cycle: The company's cash conversion days were 392.2 days at the end of December 31, 2021, compared to the industry median of 172.9 days, showing that it takes a long time to convert its inventory to cash.
• Leveraged Balance Sheet: As of December 31, 2021, the company's debt/equity ratio was 0.56x, compared to the industry median of 0.32x. Furthermore, its long-term debt-to-total-capital ratio was 27.7%, compared to 18.9% for the industry during the same period. As a result, the company's exposure to balance-sheet risk has increased.
• Deteriorating FY22 Outlook: In its full-year FY21 press release, ZBH forecasts a revenue decline of 0.00 - 4.0% YoY and adjusted diluted EPS of USD 6.40 - 6.80 for FY22. In FY21, the company reported an adjusted diluted EPS of USD 7.37. The decline in the FY22 outlook may hamper the potential interest of the shareholder's in the business.
  

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ZBH's share price has been volatile throughout the year, surged 12.22% in the past month and is currently leaning towards the mid-band of its 52-week range of USD 105.23 to USD 175.97. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 63.98, approaching the overbought zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 114.30.

Considering the current trading levels, long cash conversion days, dwindling FY22 outlook, current valuation, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 129.91, up 1.61% as of April 07, 2022.

Three-Year Technical Price Chart (as of April 07, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.