Can Zimmer Holdings, Inc. Shares Break Through $100?

Does this analyst make a good case? Or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 22, 2014 at 9:40AM
Health Care

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Zimmer Holdings, (UNKNOWN:ZMH.DL) gained a small 1% yesterday after Cantor Fitzgerald upgraded the medical device giant from hold to buy.

So what: Along with the upgrade, analyst Jeremy Feffer boosted his price target to $105 (from $98), representing about 15% worth of upside to Thursday's close. So while momentum traders might be turned off by Zimmer's sharp pullback in recent weeks, Feffer's call could reflect a strengthening sense on Wall Street that its growth prospects are becoming too cheap to pass up.

Now what: According to Cantor, Zimmer represents a particularly timely opportunity. "We are upgrading Zimmer to BUY from HOLD and raising our price target to $105 from $98 as improving volume and mix trends have made the stock's deep discount to its orthopedic and large-cap medtech peer group increasingly inappropriate, in our view," said Feffer. "With the stock off ~7.5% since reaching a closing high on 3/10 (versus the S&P's -0.7%), we believe the stock's risk/reward profile is compelling, particularly ahead of its 1Q report that we expect to be in line." When you couple that short-term potential with Zimmer's still-attractive long-term qualities, it's tough to disagree with Cantor's upgrade.