DCF Studio

    ZBH · NYQ · Healthcare

    Zimmer Biomet Holdings, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 76.17

    Market price

    USD 95.36

    Implied upside

    -20.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages 4.12% of revenue against depreciation and amortisation of 13.12%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 13.12% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 76.17-20.1%
    Exit multiple
    USD 116.70+22.4%
    Market price
    USD 95.36

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn1bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.7bnUSD 9.2bnUSD 9.8bnUSD 10.3bnUSD 10.9bn+5.9%
    EBITUSD 1.6bnUSD 1.7bnUSD 1.8bnUSD 1.9bnUSD 2.0bn+5.9%
    NOPATUSD 1.4bnUSD 1.5bnUSD 1.5bnUSD 1.6bnUSD 1.7bn+5.9%
    Add depreciation & amortisationUSD 1.1bnUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.4bn+5.9%
    Less capital expenditureUSD -1.1bnUSD -1.2bnUSD -1.3bnUSD -1.4bnUSD -1.4bn+5.9%
    Less increase in working capitalUSD -422.9mUSD -447.7mUSD -473.9mUSD -501.6mUSD -531.0m+5.9%
    Free cashflow to firmUSD 949.6mUSD 1.0bnUSD 1.1bnUSD 1.1bnUSD 1.2bn+5.9%
    Discount factor0.96540.89960.83840.78130.7281-
    Present valueUSD 916.7mUSD 904.3mUSD 892.1mUSD 880.0mUSD 868.1m-1.4%
    Present Value Of The ForecastUSD 4.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.646Reported 0.471, pulled toward 1.0 (Blume)
    Cost of equity8.55%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 18.2bn70.8% of capital
    Total debtUSD 7.5bn29.2% of capital, book value as a proxy
    Tax rate13.9%Effective, capped at statutory
    WACC7.31%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 76.17

    80% of EV

    Forecast FCFF, final year
    USD 1.2bn
    Capex at depreciation, working capital in reinvestment
    USD 1.7bn
    Less reinvestment at g/ROIC (34.2% of NOPAT)
    USD -589.6m
    Capitalised
    USD 1.1bn
    ROIC (WACC floor)
    7.3%
    Terminal value, undiscounted
    USD 24.2bn
    Terminal value, discounted
    USD 17.6bn
    Enterprise value
    USD 22.1bn
    Less net debt
    USD 6.9bn
    Equity value
    USD 15.1bn

    Exit at 10.3x EBITDA

    Value per shareUSD 116.70

    85% of EV

    Terminal value, undiscounted
    USD 35.2bn
    Terminal value, discounted
    USD 25.7bn
    Enterprise value
    USD 30.1bn
    Less net debt
    USD 6.9bn
    Equity value
    USD 23.2bn

    Spread between methods: 42%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.31%128.41133.57140.36149.86164.33
    6.31%94.1894.7495.3195.8996.49
    7.31%75.3175.7476.1776.6077.03
    8.31%61.0861.4561.8162.1862.54
    9.31%49.9750.2850.5950.9151.22

    Outlined: this model. Green text: above today's price of 95.36. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.9%11.3%+5.4pp
    EBIT margin18.3%21.2%+2.9pp
    Discount rate7.3%6.3%-1.0pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.