We maintain our Outperform recommendation on DENTSPLY International (XRAY) based on its solid third-quarter 2011 results and attractive growth prospect from new product launches and acquisition of AstraZeneca‘s (AZN) dental implant unit Astra Tech.
The company’s third quarter adjusted earnings of 46 cents a share topped the Zacks Consensus Estimate of 43 cents. Revenues jumped 14% year over year to $619.8 million, also beating the Zacks Consensus Estimate. Sales were boosted by internal growth, foreign exchange tailwind and Astra Tech acquisition. The company beefed up its earnings guidance for fiscal 2011 based on stable market conditions and the contributions of Astra Tech.
DENTSPLY should benefit from the gradual recovery in the global dental market. Not being a life-sustaining product, the dental market was badly affected by the economic downturn that resulted in patients deferring their adoption.
The company’s diversified product portfolio serves as a natural hedge against any significant sales shortfall in a volatile economy. Its overall growth strategy rests on product innovation.
DENTSPLY is poised to grow its share in the dental implant market, driven by a strong product base and significant investment on product/technology innovation and sales/marketing infrastructure.
Moreover, the company has a strong international presence, enabling it to leverage the changing dental practice across North America and Western Europe. Emerging markets (such as Asia-Pacific and Latin America) offer a healthy growth opportunity on a long-term basis as they remain vastly untapped as dental penetration is low.
The acquisition of Astra Tech has reinforced the company’s leadership in the global dental market and broadened its product range. DENTSPLY is progressing well in integrating the acquired operations and envisions the acquisition to be accretive to its adjusted earnings in 2011.
We are, however, cognizant about the sustained impact of the supply chain disruption associated with the Japan disaster. Moreover, the market conditions in Europe, mostly in the southern regions, are likely to remain soft through 2011. Our recommendation on the stock is supported by a Zacks #2 Rank, which translates into a short-term “Buy” recommendation.
