ZIMMER BIOMET HOLDINGS, INC. (ZBH) stock intrinsic value fair value estimate & owner earnings analysis

Zimmer Biomet makes and sells the implants and instruments used in joint-replacement and other orthopedic surgery: knee implants (about 40% of 2025 sales), hip implants (25%), and a Surgical, Extremities & Trauma (S.E.T.) line (26%) that now includes foot-and-ankle devices from the April 2025 acquisition of Paragon 28. A smaller technology and surgical-tools line, including the ROSA robotic surgery platform, rounds out sales. Revenue is split roughly 58% United States and 42% international, spread across Europe, Japan, China and other markets, with no single country outside the U.S. representing a dominant share. In 2022 the company spun off its spine and dental businesses as ZimVie, leaving a more focused joint-replacement and extremities company. In 2025 it added two acquisitions: Paragon 28 (foot and ankle) and Monogram Technologies (robotics), funded partly with new debt, which took long-term debt from $5.3 billion to $6.9 billion. The company remains in compliance with all of its debt covenants. Owner earnings (operating cash flow less the swing in working capital, less stock-based compensation, less the capital spending needed just to keep the business running rather than grow it) have ranged from about $5.10 to $7.00 per share over 2020-2025, a period that runs from the COVID-era trough in elective surgery volumes through the recovery and the 2025 acquisitions. The typical year in that stretch, which we use as the starting point for the valuation, is about $6.15 per share. One accounting judgment worth noting: Zimmer Biomet's capital spending includes large recurring outlays for surgical instruments loaned to hospitals (over $250 million a year), which we treated as mostly ongoing maintenance spending rather than growth spending, scaling only the portion tied to revenue growth as "growth" capital. 2024's cash flow was flattered by unusual factors the company itself flagged: an acceleration of vendor payments and higher bonus, tax and restructuring payments near year-end depressed working capital that year in a way that then reversed in 2025. Looked at through operating cash flow and revenue, both kept growing (cash flow up about 13% and revenue up about 7% in 2025), so we do not read the working-capital swing as a business slowdown. Three cases: The base case assumes revenue and owner earnings grow around 4% a year near term, in line with the company's own 2026 guidance range, easing toward roughly 3% by the second half of the ten-year forecast as the 2025 acquisitions are absorbed and growth returns to the pace of the broader joint-replacement market, which is underpinned by an aging population needing more knee and hip replacements over time. We carry a modest 2% growth rate beyond year ten, reflecting the industry's long, demonstrated record of steady low-to-mid single-digit volume growth. That produces a value of roughly $177 per share. The bear case assumes the risks already visible in the filings weigh on the business for an extended period: pricing pressure in China's government procurement program, U.S. tariffs, ongoing restructuring costs, and the extra interest expense from the higher debt load, combined with slower integration of the two 2025 deals. Growth is essentially flat for most of the next decade and we assume no further growth after year ten. That produces a value of roughly $103 per share. The bull case assumes the growth levers management has already put in motion play out well: the Paragon 28 and Monogram deals succeed in building out the foot-and-ankle and robotics businesses (the S.E.T. category already grew 15% in 2025), the ongoing restructuring program delivers cost savings, and the company sustains growth above the broader market for longer. That produces a value of roughly $232 per share. All three cases discount future owner earnings at a flat 6%, the same rate we use for every company we value, so none of the difference between the cases comes from a risk adjustment in the discount rate; it comes entirely from how the underlying business performs. The margin-of-safety price is around $124 per share, roughly a 30% discount to the base case, reflecting that this is a fundamentally stable, recurring-demand business (joint replacement is rarely discretionary once needed, and surgeons are slow to switch implant systems) but one carrying real near-term integration and leverage risk from the 2025 acquisitions. For that price to prove wrong on the upside, the acquisitions would need to disappoint and debt would need to stay elevated for years; for it to prove wrong on the downside, growth and cost savings would need to run well ahead of what the company has guided.