Head and Shoulders Above the Rest

Exactly one year ago today, I had joint replacement surgery. After more than five decades of throwing balls, swinging paddles, and pushing dumbbells, my right shoulder was kaput.

My surgeon warned me that it would take a year for my shoulder to fully recover. But since I was in good condition otherwise, I felt I could be back up to full speed a lot sooner than that.

Guess what? I was wrong! Only now does my shoulder feel like it used to before arthritis made it ache all day.

That’s the good news. The bad news is my left knee may need to be replaced soon. It too has been compromised by arthritis to the point that replacement is the only long-term solution.

Six years ago, I didn’t think I would ever need joint replacement surgery since I’d never suffered a serious injury. But that all changed when I started playing pickleball.

Suddenly, it seemed like every other pickleball player I met already had at least one joint replaced. As they like to say, “There are two types of pickleball players; those that have had a joint replaced, and those that will.”

I’m beginning to think that statement is more accurate than it is facetious. Older bodies like mine are more brittle and less resistant to the running (sort of), jumping (barely), and lunging (if you can call it that) the game sometimes requires.

Despite that reality, I am not going to stop playing. It’s too much fun and it provides an opportunity to get out of the socialize with a lot of wonderful people.

Missing the Ball

Not only do I feel that way, but so does just about everyone else I know that plays the game. And at the rate pickleball is growing, the joint replacement industry should experience a surge in demand.

That got me wondering if there is a pure play on joint replacement. Joint replacement surgery isn’t cheap and the barriers to entry are high. That limits the competition.

According to Orthoworld, “We estimate that the joint replacement market will grow 7.4% and reach $21.5 billion in 2023 and nearly $26 billion in 2027.” Last year, the United States comprised 63.5% of the global joint replacement market.

Nearly half of all joint replacements are knees, with hips accounting for roughly 40%. The remaining 14% are for extremities, including shoulders.

I believe the rapidly growing popularity of pickleball among seniors will trigger a surge in shoulder surgeries. Even though the paddle is small and the ball is light, swinging an arm thousands of times will eventually wear down an old shoulder.

That is where I believe the Orthoworld report is, pardon the pun, missing the ball. It states, “We anticipate a modest tailwind continuing through 2024, with growth rates regressing to their averages sometime in 2025.”

That may be true for knees and hips. However, I expect shoulder replacement surgeries to grow at an accelerated rate over the remainder of this decade.

Under the heading, ‘Important Developments in the Joint Replacement Market’ there is no mention of pickleball at all. Instead, it discusses supply chain disruptions and accelerating cementless knee adoption.

I believe this is a case of not seeing the forest for the trees. The joint replacement industry is directly in the path of a tidal wave of new business, and it doesn’t seem to know it.

The Purest of Plays

There are four companies that dominate the joint replacement market. They are Zimmer Biomet (NYSE: ZBH), Stryker (NYSE: SYK), Smith+Nephew (NYSE: SNN), and DePuy Synthes (private).

Of the three publicly traded companies on that list, I have no idea which one will get the lion’s share of that business. That may not matter. All of them should do well.

If I had to pick one, I’d go with Zimmer Biomet. Unlike the others, it derives nearly all of its income from joint replacement surgeries.

The company’s fiscal 2023 Q3 results (ended September 30) included a 5% year-over-year increase in net sales. Over the first nine months of this year, net sales grew 7.9% on a constant currency basis.

Those aren’t the kind of numbers that send pulses racing on Wall Street. These days, anything less than double-digit sales growth is usually met with a yawn.

That is precisely why I believe this sector could surprise to the upside in the years to come. Expectations are low, as are multiple to sales and earnings. In a year or two, that could all change. Play ball!