DENTSPLY SIRONA stock (NASDAQ: XRAY), a dental consumables and equipment company, trades at $32 per share, about 50% below the level seen in March 2021. XRAY stock was trading at around $36 in early June 2022, just before the Fed started increasing rates, and is now 10% below that level, compared to 20% gains for the S&P 500 during this period. 2022 wasn’t a great year for XRAY stock, with its stock falling after changes in the top management and, later in the year, the company taking a $1.1 billion impairment charge amid weakening macroeconomic factors.

Looking at a slightly longer term, XRAY stock has suffered a sharp decline of 40% from levels of $50 in early January 2021 to around $30 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Notably, XRAY stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 7% in 2021, -43% in 2022, and 1% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that XRAY underperformed the S&P in 2021, 2022, and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector, including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could XRAY face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? Returning to the pre-inflation shock high of over $69 (seen in May 2021) means that XRAY stock will have to gain over 2x from here, and we don’t think that will materialize anytime soon. That said, XRAY stock currently trades at 1.8x revenues, below its last five-year average of 2.6x, and appears to have some room for growth. Our DENTSPLY (XRAY) Valuation Ratios Comparison dashboard has more details.

Our detailed analysis of DENTSPLY’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
April 2021: Inflation rates cross 4% and increase rapidly.
Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.

October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.

Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how XRAY stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

10/1/2007: Approximate pre-crisis peak in S&P 500 index
9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
3/1/2009: Approximate bottoming out of S&P 500 index
12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

DENTSPLY and S&P 500 Performance During 2007-08 Crisis

XRAY stock declined from $42 in September 2007 (pre-crisis peak) to $23 in March 2009 (as the markets bottomed out), implying it lost 45% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $35 in early 2010, rising over 50% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

DENTSPLY’s Fundamentals Over Recent Years

DENTSPLY’s revenue decreased marginally from $4.0 billion in 2019 to $3.9 billion in 2022 due to lower volume for its endodontic and restorative products, especially in the U.S. and China. The strengthening of the U.S. Dollar also weighed on the overall top-line growth. Looking at the recent past, the company’s revenue grew 0.5% on a reported basis and 2.4% on an organic basis for the nine-month period ending September 2023. This growth was driven by higher volume for its orthodontic aligners and overall pricing gains.

The company’s earnings stood at $(4.41) on a per-share and reported basis in 2022, compared to the $1.18 figure in 2019, primarily due to the $1.1 billion impairment charge mentioned above. Given the macroeconomic headwinds, the company lowered its 2023 organic sales outlook to now rise about 1% and adjusted earnings to be in the range of $1.80 and $1.85, compared to its previous guidance of 3% organic sales growth and $1.92 to $2.02 in earnings.

Does DENTSPLY Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

DENTSPLY’s total debt increased from $1.6 billion in 2019 to $2.1 billion now, while its cash decreased marginally from $0.4 billion to $0.3 billion over the same period. The company also garnered $0.4 billion in cash flows from operations in the last twelve months. Given its cash cushion, DENTSPLY appears to be in a comfortable position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe XRAY stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors and a strengthening U.S. Dollar are potential risk factors for realizing these gains.

While XRAY stock can see higher levels, it is helpful to see how DENTSPLY’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns
Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 XRAY Return
1%
1%
-44%
 S&P 500 Return
0%
19%
104%
 Trefis Reinforced Value Portfolio
1%
29%
565%

[1] Month-to-date and year-to-date as of 12/6/2023
[2] Cumulative total returns since the end of 2016

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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.

Original: Investing Feed: Will DENTSPLY Stock Rebound To Pre-Inflation Highs of Over $60?