Americans are living longer -- and that's great news for Zimmer (NYSE:ZMH). As for how great, we'll be learning the latest news on that front on Monday, when the maker of replacements for our osteo-porous parts reports its earnings numbers for Q4 and all of 2005.

Wall Street Wisdom:

  • General consensus. Zimmer's positioning at the crest of a demographic tide hasn't gone unnoticed on Wall Street, where a full two dozen analysts spend their waking hours tracking the company's progress. Of these learned souls, 15 rate the company a "buy," with the rest counseling either "hold" or "sell."
  • Revenues. Analysts predict that Zimmer will report 6% sales growth to $849 million tomorrow.
  • Earnings. Profits are believed to have hit $0.83 per share in Q4 2005, a 17% increase in comparison with the year-ago quarter.

Margin watch:
Zimmer's margins are on a three-pronged march upwards, with gross margins rising gradually, operating margins a bit faster, and net margins faster still.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

74.8

75.2

75.8

76.5

77.0

77.3

Op.

29.5

29.2

30.3

31.4

32.3

33.1

Net

13.0

13.1

18.2

20.1

21.8

22.6
All data courtesy of Capital IQ, a division of Standard & Poors. Data reflects trailing-12-month performance for the quarters ending in the named months.

Valuation metrics:
With its margins as high as they are, and rising as steadily as they are, you won't be surprised to hear that Zimmer's shares command premium prices. The shares currently trade for 23 times trailing earnings despite the prediction that the company will grow profits at 16.5% per annum over the long term. On a price-to- free cash flow basis, Zimmer looks pricier still, trading at 27 times free cash flow.

Competitors:
Compared with its competitors, though, Zimmer's share price looks pretty much in the middle of the road. Slower-growing Biomet (NASDAQ:BMET) trades at about the same earnings multiple, while faster-growing Stryker (NYSE:SYK) commands about a 20% premium to Zimmer.

Fool contributorRich Smithdoes not own shares of any company named above.