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Author: TMFAgewone Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 47  
Subject: Re: ZMH: Why not SYK? Date: 2/17/2011 4:38 PM
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Hey Anurag,

Sorry not to get back sooner, I somehow missed your post. To answer your question, I think ZMH is cheaper than SYK: I get ZMH trading at 14 times trailing cash flow and 8.2 times EV/EBITDA, where SYK is trading at 16 times cash flow and 9.1 times EV/EBITDA.

That, in part, gets to the root of my ZMH rec: It's not done as well as SYK, in recent years. Where SYK's products have experienced above-market growth and solid adoption, ZMH lagged on new product launches and suffered from a costly product recall. My thesis, as referenced in my article, is that ZMH will hold its market position--and recover lost share on new product launches.

Fourth quarter results, for what it's worth, bear that out. New product launches seem to be getting traction, and Zimmer's getting share it lost back. I think this points to the strength of its moat: To the extent surgeons can avoid switching devices, they will.

Hope this helps, and keep the questions coming.

-Mike
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