Is Biomet the bargain of the Industry?
BY EDITOR, AUGUST 25, 2003
Is anyone paying attention to Biomet? With Stryker at 38x earnings, Zimmer at 31x earnings and little ol' Wright Medical (3% market share) at a whopping 48x earnings, why is Biomet at 26x? Those, by the way, are trailing 12 month earnings. Looking at this year's expected earnings (thank you First Call), Biomet is being valued at 23x earnings – still lower than any of its comparables.
Could Biomet be lagging its peers in some critical way? Like – profits? Biomet's operating profit margin is 31% of sales while Zimmer's is also 31%, Stryker's is 19% and Wright Medical's is 9%.
In fact, Biomet is tied with Zimmer for the highest operating profit margin in the industry.
Ok then, how about earnings growth? Biomet's earnings for the 12 months ending May 31, 2003 rose 20%. Last year earnings rose “only” 21%. On a P/E to earnings growth basis, Biomet is a downright 'blue-light' special. Biomet's P/E of 26x is 1.3x its earnings growth rate. By contrast, Zimmer's P/E to earnings growth ratio is 2.0x and Stryker's is 1.9x.
Maybe Biomet has a weak balance sheet or cash flow. Let's see, assets stand at $1.5 billion and long term debt is' zero. Current debt is $238 million, which is about 15% of total assets and just above its cash balances of $185 million. Oh yeah, cash flow is running at about $200 million a year.
Sales growth? Would you believe 17%?
Over the past twelve months Biomet's stock has moved exactly 2%. A year ago, a share of Biomet was worth 32x trailing earnings. Today it is 26x. Tomorrow it will be worth 23x. The chart is flat, flat, flat.
Maybe the problem is that Biomet isn't sexy. No Oxynium coating. No 2-incision MIS. No ceramic-on-ceramic hip or mobil bearing knee. Just profits and cash.
If Wall Street isn't paying attention we wonder if anyone has whispered in Dane's ear... “maybe you should just buy it all back”.
