Key Takeaways:
- The 2-Minute Valuation Model values ZBH stock at $128 per share in 2 years.
- That’s a potential 26% upside from today’s price of $102.
- Zimmer Biomet’s EPS is projected to grow from $8.00 in 2024 to $9.61 by 2027, representing 20% growth over three years.
- ZBH stock trades at 12.4x forward earnings, significantly below its historical average of 15.4x.
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Most healthcare stocks trade at a premium these days, but Zimmer Biomet (ZBH) might be one of the few exceptions.
It’s a steady business with long-term tailwinds from an aging population, yet the stock is trading at a discount to its historical average.
Let’s take a look at whether this could be a good entry point for long-term investors.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Zimmer Biotech Stock Looks Undervalued
Forecast
Zimmer Biomet is expected to grow earnings steadily over the next few years. While growth is projected to slow to just 2.6% in 2025, analysts forecast a return to high-single-digit earnings growth in 2026 and 2027.
This suggests the company may be facing some near-term headwinds, but longer-term demand looks strong as an aging population continues to drive the need for orthopedic devices and procedures.
This earnings growth for ZBH stock is likely to be driven by:
- Demographics Tailwind: The aging global population, in developed markets, creates a natural growth driver for orthopedic devices as the incidence of joint replacements increases with age.
- Market Leadership Position: Zimmer Biomet holds strong positions in key orthopedic device markets, including hip and knee replacements, giving it pricing power and scale advantages.
- Operational Improvements: The company has been implementing efficiency initiatives that should drive margin expansion over time, potentially accelerating earnings growth beyond revenue growth.
- Innovation Pipeline: ZBH continues to invest in next-generation medical devices and digital solutions that could drive market share gains and create new revenue streams.
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Is ZBH Stock Undervalued Right Now?
ZBH appears undervalued based on current valuation metrics. The stock trades below its 3-year average multiple and near the low end of its historical range.
This discount may reflect short-term concerns around elective procedure volumes, pricing pressure, or increased competition in orthopedics.
But it likely doesn’t capture the company’s longer-term growth potential, especially as aging demographics support steady demand for its core products.
For our valuation, we will use a forward P/E multiple of 14x, which is slightly below the stock’s historical 3-year average multiple.
Fair Value of ZBH Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $9.00
- Conservative forward P/E multiple: 14x
- Expected dividends in the next 2 years: $2
Expected Normalized EPS ($9.00) * Forward P/E ratio (14x) + Dividends ($2) = Expected Share Price ($128)
The 2-year expected ZBH stock price we would get from this valuation is $128 per share.
With ZBH stock currently trading at around $102, this implies a potential upside of approximately 26% over the next two years or a 12% annualized return.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Target Price for Zimmer Biomet Stock?
Analysts have an average price target of around $122 per share for ZBH stock, indicating they see about 20% upside from its current share price:
Risks to Consider
While our valuation suggests that Zimmer Biomet could easily reach $120/share or more by 2027, investors should be aware of several risks:
- Competitive Landscape: The orthopedic device market is highly competitive, with several large players vying for market share through innovation and pricing.
- Pricing Pressure: Ongoing healthcare cost containment efforts by governments and insurers worldwide could impact pricing power and margins.
- Procedure Volume Volatility: Elective orthopedic procedures can fluctuate based on economic conditions, insurance coverage, and healthcare system capacity.
- Regulatory Hurdles: Medical devices face rigorous regulatory oversight, with potential for delays or complications in new product approvals.
Despite these risks, Zimmer Biomet’s current valuation offers a margin of safety, which may help limit downside while leaving room for meaningful upside if the company delivers on its growth plans.
TIKR Takeaway
Zimmer Biomet represents an opportunity to invest in a leading orthopedic device manufacturer at a discounted valuation relative to its history and growth potential.
The company’s consistent earnings trajectory, market leadership position, and demographic tailwinds create a favorable long-term outlook despite potential near-term challenges.
For healthcare investors seeking exposure to the orthopedic device market with a value orientation, ZBH offers an attractive risk-reward profile at current prices.
Is ZBH stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets, growth forecasts, and see if the stock is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
