Needham initiated coverage on Dentsply Sirona Inc (NASDAQ:XRAY), citing its third turnaround effort since the 2016 Dentsply-Sirona merger.
Under prior management, Dentsply Sirona improved its product portfolio but faced challenges in commercial execution. The current management prioritizes enhanced execution by investing in the commercial division, engaging customers, and streamlining portfolio efficiency.
Needham analysts David Saxon, Mike Matson, and Joseph Conway note that the management's focus on improving commercial execution should allow it to capitalize on its competitive portfolio. XRAY believes it can reach 4-6% organic growth with ~500 bps of margin expansion by 2026, with potential upside driven by geographic expansion, new launches, and a potentially easing macro.
The analysts initiate with a Buy rating and a price target of $35.
Though there is a macro headwind to revenue growth in the near term, margin expansion potential is tied to factors independent of top-line performance.
Despite a challenging macro environment, Needham sees double-digit EPS growth over the next few years.
Needham writes that XRAY shares are attractively valued, considering its EPS growth potential. The shares trade at a P/E multiple of 16.0x Needham 2023 estimate, which is in line with its small/mid-cap value peers trading at a median 2023E P/E multiple of 16.0x and an 11% premium to its dental peers trading a median 2023E P/E multiple of 14.4x.
Price Action: XRAY shares are up 0.63% at $29.50 on the last check Thursday.