XRAY - Diving Into Dentsply Sirona Stock

2024-01-03 11:23:06 ET

Summary

• Dentsply Sirona stock has risen 25% in the past nine weeks and the company recently added $1 billion to its stock buyback program.
• Dentsply Sirona supplies the dental industry, offering technologies and equipment, as well as consumables.
• After the recent rally in the shares, Dentsply Sirona stock does look fully priced and vulnerable to profit taking. An analysis follows in the paragraphs below.

Blessed are they who hold lively conversations with the helplessly mute, for they shall be called dentists .”? Ann Landers.

Today, we put Dentsply Sirona Inc. ( XRAY ) in the spotlight. The stock has moved up nearly 25% within the nine-week rally in the overall market that closed out 2023. The company also recently added $1 billion to its stock buyback authorization program. Can the good times continue for investors in 2024? An analysis follows below.

Company Overview

This dental supply company operates from two primary business segments: Technologies & Equipment, and Consumables. The former provides dental equipment, such as treatment centers, imaging equipment, motorized dental handpieces, and other instruments for dental practitioners. Consumables consist of endodontic products comprising drills, filers, sealers, irrigation needles, and other tools or single-use solutions. The company is located in Charlotte, NC. The stock currently trades near $36.00 a share and sports an approximate market capitalization of $7.5 billion.

Third Quarter Results

The company posted its Q3 numbers on November 2nd. Dentsply Sirona delivered non-GAAP earnings of 49 cents a share, a penny above expectations. However, revenues were flat compared to the same period a year ago at $947 million, some $28 million below the consensus. In addition, on a GAAP basis, the company lost $266 million for the quarter. This was due to a $302 million non-cash charge for the impairment of goodwill and other intangible assets. Below are how results broke down by division and region during the quarter.

Management revised down its projection of roughly three percent revenue growth in FY2023 to just one percent. It also dropped its FY2023 EPS projections to $1.80 to $1.85 a share from $1.92 to $2.02 a share previously. Here is how leadership sees other key metrics coming in for FY2023.

Analyst Commentary & Balance Sheet

The analyst community is currently mixed about Dentsply Sirona prospects. Since third quarter results were posted, seven analyst firms including Needham and William Blair have reissued/assigned Buy/Outperform ratings on the stock. Price targets proffered range from $30 to $41 a share. Six analyst firms including Goldman Sachs and Stifel Nicolaus have reissued Hold/Neutral ratings against the shares with price targets ranging from $30 to $32 a share. Needham had a recent pessimistic and granular call on the industry that is worth reading .

Approximately six percent of the outstanding float in the shares is currently held short. Three insiders, including the company's CEO and CFO, sold just over $900,000 worth of shares collectively in the back half of November. That was the only insider activity in the stock in the last two quarters of 2023.

Dentsply Sirona ended the third quarter with nearly $310 million worth of cash and marketable securities on its balance sheet . Through the first nine months of the year, the company has returned $236 million to shareholders in the form of dividends and stock buybacks. It paid out $29 million worth of dividends in the third quarter. Operating cash flow improved to $134 million in the third quarter, up from $109 million in the same period a year ago. Management guided it planned to repurchase $150 million worth of stock in its fiscal fourth quarter. Dentsply Sirona listed just over $1.8 billion in long-term debt on its third quarter 10-Q .

Verdict

Dentsply Sirona made $2.09 a share in FY2022 on $3.92 billion in sales. The current analyst firm consensus has earnings falling to $1.82 on flat revenue growth in FY2023. They project profits to rebound to $2.05 a share on two percent sales growth in FY2024.

First of all, given the company's long-term debt and the current valuations of the stock, I believe shareholders would be better served on a longer term basis if management directed more of its cash flow to reducing debt rather than stock buybacks. Dentsply Sirona had $18 million in net interest expense in the third quarter, an amount that will rise as debt rolls over. The company projected interest expense of $90 million for FY2023.

Second, Dentsply Sirona Inc. stock feels at least fully valued here given flat revenue growth, a valuation of approximately 20 times this fiscal year's earnings, and with a dividend yield of just under 1.6%. Therefore, the recommendation is to avoid the shares at these levels.

Every tooth in a man’s head is more valuable than a diamond .” – Miguel de Cervantes.

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