Dentsply Sirona Is At An Attractive Entry Point For Investors Seeking Play On Structural Growth In Med-Tech

Following the 10 percent decline in Dentsply Sirona Inc (NASDAQ: XRAY) shares, compared to the 7 percent rise in the broader MedTech, Morgan Stanley’s Steve Beuchaw believes investors now have an attractive entry point into a “structural growth story.”

Beuchaw upgraded the stock to Overweight, while raising the price target from $65 to $69.

Share Price Weakness

Dentsply Sirona’s shares declined after its Q2 results, with better than expected EPS but revenue that fell short of expectations.

The analyst believes share price weakness “sets up the stock for better performance against a backdrop of negative dental market sentiment.”

Beuchaw expects dental consumables growth to improve and lead to a shift in investor focus to Dentsply Sirona’s potential for robust double digit free cash flow growth.

Growth Drivers

The analyst also expects faster growth for the company going forward, with 180 bps organic growth acceleration expected for 2017.

Among the drivers of top line growth, the analyst listed “digital dentistry adoption and cross-selling of consumables,” return to focus on commercial headcount, easier digital equipment comps and product refreshes in 2017, and revenue synergies.

“In the short term, we expect more favorable dental channel sentiment post 3Q results, and our macro tracking confirms end customer demand trends are broadly stable, while slower 2Q-3Q growth is more tied to tough comps and distributor dynamics that reverse in '17,” Beuchamp added.

Nasdaq reported on October 26 that Dentsply Sirona shares appear to be oversold.