Zimmer Zooms - TheStreet

Zimmer Zooms

Shares jump after a strong quarter.
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Zimmer

(ZMH)

is on a roll.

The giant orthopedic device maker on Wednesday handily beat first quarter expectations, as sales for its implants -- particularly its new Gender Solutions Knee -- took off. Revenue climbed 10% to $950 million, coming in comfortably ahead of Wall Street's $934 million target. Meanwhile, net income jumped 14% to $233 million, with earnings per share of 98 cents topping the consensus estimate by a full nickel.

"We're very pleased to start off the year with a quarter that exceeded both our guidance and Wall Street's expectations for sales and earnings performance," Zimmer CEO Ray Elliott stated. "Our reconstructive sales continued to build momentum, led by more than 14,000 implantations of our Zimmer Gender Solutions Knee -- exceeding our previously increased aspirations."

Sales of the knee, being marketed to women through direct-to-consumer ads, surged more than 50% over the last three months alone.

Looking ahead, Zimmer expects the good times to continue. The company raised both its top-line and bottom-line guidance for the current year.

Zimmer's stock jumped $3.98 to $92.75 in after-hours trading. It is hovering near a record high.

Early Calls

Wall Street experts could be somewhat surprised by Zimmer's strong results.

BMO Capital Markets analyst Joanne Wuensch actually sensed a possible top-line miss on the way. However, she assumed that Zimmer would hit bottom-line targets as the company capitalized on stabilizing market trends and growing demand for new products such as its Gender Solutions Knee.

Wuensch has a market-perform rating on Zimmer's stock. Her firm has no business ties to the company.

Meanwhile, Wachovia analyst Michael Matson felt even more optimistic about Zimmer's looming results.

"We expect ZMH to beat consensus EPS estimates during 2007," Matson wrote earlier this month. "ZMH beat consensus each of the past eight quarters by an average of 3 cents. If Zimmer sees its targeted 40 cents in incremental operating profit for every new sales dollar, Q1 EPS upside should be (greater than) 3 cents."

Matson offered three major reasons for his confident outlook. First, he said, Zimmer's results should be lifted by new products and favorable currency effects. Next, he said, the company should post better margins than some people anticipate. And finally, he concluded, the company has proven that it can deliver upside surprises already through its strong track record of doing just that.

Matson sees even better times ahead. He believes that Zimmer will enjoy solid volume growth and even some possible price increases -- reversing a negative trend -- as the year wears on.

"ZMH remains our favorite large-cap and a Focus List pick," Matson wrote. "We believe that, in contrast to peers

Smith & Nephew

(SNN) - Get Report

and

Stryker

(SYK) - Get Report

, ZMH could see both potential EPS upside and multiple expansion over the next 12 months."

Matson has an outperform rating on Zimmer's stock, which he values at $98 to $108 a share. His firm has no business ties to the company.