Zimmer Biomet Holdings Inc (ZBH)

Conclusion

Zimmer Biomet makes orthopaedic reconstructive implants, sports medicine and biologics products, craniomaxillofacial and thoracic devices, and the ROSA robot for knee surgery. On 2026-11-09 the share price was 108.33 USD, giving a market capitalisation of 20.5 billion USD and an enterprise value of 27.6 billion USD.

The verdict is undervalued. Today's multiples sit well below their own ten-year medians: enterprise value to EBITDA is 12.1 against a median of 19.5, a premium of -38.0%, and price to free cash flow is 12.4 against 19.8, a premium of -37.4%. The discounted cash flow gives 153.26 USD per share, and the fair value from historical multiples is 156.75 USD. The fair value band runs from 124.01 to 186.01 USD with a midpoint of 155.01 USD, a margin of safety of 43.1% at the current price. The reverse discounted cash flow implies growth of -0.1% a year, while revenue grew at 6.1% a year over five years and free cash flow per share at 7.8%.

What holds the case up is free cash flow conversion of 2.16x over the last twelve months, eight earnings beats in eight quarters, and a five-year share count change of -1.4%. What could break it is a return on invested capital of 5.05% against a weighted cost of capital of 7.62%, net debt at 3.11 times EBITDA, and interest coverage of 4.09.

Financial health

Financial strength is yellow: the current ratio of 1.46 holds it up, while net debt to EBITDA of 3.11, interest coverage of 4.09 and an Altman Z-score of 2.47 pull it down. The quick ratio is 0.63 and debt to equity is 0.59. The Altman model was designed for manufacturing companies; Zimmer is a device maker, so it is applied here with that limit in mind, and the score sits in the grey zone. Insolvency risk is low, about 0.3% by the estimate of the Ohlson model over one to two years. Debt has fallen over the last five years, with debt versus revenue growth at -7.6% on annual figures.

Earnings quality

Earnings quality is green. Free cash flow conversion is 2.16x on a twelve-month basis and 1.91x on a five-year basis, and the accrual ratio is -0.045, which suggests cash earnings exceed reported earnings. Stock-based compensation is 1.1% of revenue, and free cash flow after it is 1.56 billion USD. The share count fell at a five-year compound rate of -1.4%, which points to buybacks. The Piotroski score is 5 out of 9. A Beneish M-score is not available. Eight of eight recent quarters beat expectations, with an average surprise of 3.2%. Estimate revisions for next year moved -0.95% over ninety days, with one upward and three downward revisions in the last thirty days.

Profitability

Profitability is yellow. The operating margin of 15.1% is above its ten-year median of 11.7%, and the net margin of 9.0% is above its median of 7.2%. The gross margin of 69.7% is below its median of 71.3%. The decisive number is return on invested capital: 5.05% against a weighted cost of capital of 7.62%, a given difference of -2.58%, which means the business currently earns less than its capital costs. The five-year median return on invested capital is 4.86%. Return on equity is 6.0%. The DuPont split shows a net margin of 8.6%, an asset turnover of 0.36 and an equity multiplier of 1.82, so the return comes mainly from margin and not from leverage.

Growth

Growth is green. Revenue compounded at 5.9% over three years, 6.1% over five years and 3.2% over ten years. Earnings per share compounded at 47.8% over three years and 16.4% over ten years, with the three-year rate lifted by a low earlier base. Free cash flow per share compounded at 12.4% over three years, 7.8% over five and 7.5% over ten. Revenue grew in nine of the ten comparable years. Analysts expect next-year earnings per share growth of 5.1%.

Valuation

Valuation is green. Against their own ten-year medians, the multiples sit at a premium of -7.0% on price to earnings (26.7 against 28.7 over eight points), -38.0% on enterprise value to EBITDA, -37.4% on price to free cash flow, -30.9% on price to sales and -25.7% on price to book. The discounted cash flow uses a discount rate of 8.9%, first-stage growth of 5.1% and terminal growth of 2.5%, and gives 153.26 USD per share. The terminal value makes up 56.2% of that value, so the result depends heavily on long-run assumptions. The fair value band is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target. The reverse discounted cash flow implies growth of -0.1% against revenue growth of 6.1% over five years. The dividend yield is 0.9% and the payout is 11.3% of free cash flow.

Risks

The most serious weakness is returns. A return on invested capital of 5.05% below a cost of capital of 7.62% means growth adds little value until returns improve. Net debt of 3.11 times EBITDA and interest coverage of 4.09 leave less room if earnings fall or refinancing costs rise. The Altman score of 2.47 sits in the grey zone, and the Altman model was not built for device makers. A Beneish M-score is not available, so the risk of earnings manipulation cannot be checked here. Forward estimates have been cut more often than raised. The analysis has limits: it has no debt maturity schedule and no revenue split by segment, so it cannot show when debt falls due or which product lines drive growth. The valuation rests on fixed assumptions, and a large share of the discounted cash flow comes from the terminal value.