NEW YORK (TheStreet) -- Shares of Zimmer Holdings Inc. (ZMH are soaring, up 16.57% to $106.60 in pre-market trade, after the joint replacement technologies company said it would buy orthopedic products company Biomet Inc. for about $13.35 billion.
Zimmer will pay $10.35 billion in cash and issue $3 billion in shares to Biomet shareholders, Reuters reports.
Biomet was taken private for $11.4 billion in 2007 by a private equity consortium that included Blackstone Group (BX - Get Report), Goldman Sachs Capital Partners (GS - Get Report), Kohlberg Kravis Roberts & Co. (KKR - Get Report) and TPG.
TheStreet Ratings team rates ZIMMER HOLDINGS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate ZIMMER HOLDINGS INC (ZMH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- ZIMMER HOLDINGS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ZIMMER HOLDINGS INC increased its bottom line by earning $4.43 versus $4.29 in the prior year. This year, the market expects an improvement in earnings ($6.21 versus $4.43).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income increased by 54.4% when compared to the same quarter one year prior, rising from $152.80 million to $235.90 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 5.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ZMH's debt-to-equity ratio is very low at 0.27 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.66, which clearly demonstrates the ability to cover short-term cash needs.
- You can view the full analysis from the report here: ZMH Ratings Report