Zimmer (ZMH): A 'hip' idea

"Zimmer Holdings (NYSE: ZMH) is a global leader in orthopedic and dental reconstructive implants and surgical products," says Charles Mizrahi  in his advisory, Hidden Values Alert.

"Its primary customers include musculoskeletal surgeons, neurosurgeons, oral surgeons, dentists, hospitals, stocking distributors, healthcare dealers, and, in its capacity as agent, healthcare purchasing organizations or buying groups.

"These customers range from large multinational enterprises to independent surgeons. ZMH has operations in more than 25 countries and markets products in more than 100 countries.

"Operations are managed through three major geographic segments: the Americas, Europe, and Asia Pacific.

"ZMH generated $550 million in free cash flow over the past 12 months. The company has a strong balance sheet; its current ratio (current assets/current liabilities) is 2.83. The company has $2.83 in current assets for every $1 of current liabilities.

"Shares outstanding continue to decrease as the company buys back its shares. Share count over the past four years has declined by 8%. Net profit margins have been edging higher and are currently at 20.6%.

"Overall, ZMH is a well-run business, and a price of $33 or lower per share represents a very good value. If ZMH can grow earnings at only 10% per annum and maintain a P/E of 10, the stock will handsomely reward investors during the next five years."