DENTSPLY: Product Portfolio Strong, Currency Woes Remain - Analyst Blog

On Mar 18, we issued an updated research report on DENTSPLY International Inc.XRAY . In our opinion, this York, PA-based dental technology company has an innovative product pipeline which should serve as a key growth catalyst. However, the company is facing several major headwinds in the near term which are expected to considerably hurt its top-line growth.

With significant international presence, we believe that DENTSPLY is going to be hurt by unfavorable currency volatility. A strengthening U.S. dollar, especially against the euro, as well as emerging market currencies will negatively impact the company's results, at least for the next couple of quarters in 2015.

Moreover, volatility in the CIS region, particularly in Russia and Ukraine, does not bode well for DENTSPLY. Continued weakness in Japan and Brazil further continue to pose substantial challenges. We believe that this gloomy macro-economic environment will hurt the company's overall growth in the near term.

However, despite challenging macroeconomic headwinds, product innovation has remained a key growth strategy for DENTSPLY. We feel that the company's diversified product portfolio and recurring revenue base are key growth catalysts for the long run.

A gradual recovery of the U.S. and Western Europe markets should benefit DENTSPLY. Also, emerging markets like Asia-Pacific & the Middle East/Africa provide huge opportunities for DENTSPLY. These markets are vastly untapped with low dental products penetration.

DENTSPLY has a strong balance sheet and generates significant cash flow. The company also remains focused on improving its cost structure that should help it achieve its 20% operating margin target by 2017. We believe that the strong cash flow generation ability will help the company to make further investments in product development as well as acquisitions and share repurchases over the long term.

However, higher capital expenditure on product development coupled with persistent decline in sales will ultimately put margins under pressure. Moreover, intensifying competition from peers and lower reimbursements are added concerns.

Stocks to Consider

Currently, DENTSPLY carries a Zacks Rank #4 (Sell). Better-ranked stocks in the medical/dental supply industry include Cardinal Health CAH , McKesson Corp MCK and Merit Medical MMSI . All three stocks carry a Zacks Rank #2 (Buy).

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CARDINAL HEALTH (CAH): Free Stock Analysis Report

MCKESSON CORP (MCK): Free Stock Analysis Report

DENTSPLY INTL (XRAY): Free Stock Analysis Report

MERIT MEDICAL (MMSI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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