Dentsply Stock is Repricing Itself

Global dental products provider Dentsply NASDAQ: XRAY stock has been plunging worse than the benchmark indices down (-34%) on the year. The maker of SureSmile clear dental aligner systems has diversified its portfolio with the acquisition of Byte and Propel Orthodontics. The Company admittedly had a disappointing start to the year plagued by global supply chain disruptions, COVID restrictions in China, the Russian Ukraine conflict, and unfavorable foreign exchange rates. These headwinds are expected to continue and have been factored into its lowered fiscal full-year 2022 downside guidance. Inflationary pressures squeezed operating margins down to 15.9% for the first quarter, partially offset by price increases. China's sales were hampered by the lockdowns and COVID restrictions in China. European sales were strong with 7% organic growth. The U.S. was the key downfall for earnings. Shares trade at 15.3X forward earnings compared to key competitor Align Technologies NASDAQ: ALGN shares trading at 27.5X forward earnings. The Company still believes most of the headwinds are transitory as margins are expected to improve back over 17% for the full year. Prudent investors seeking exposure in the clear aligner dental segment can watch for opportunistic pullbacks in shares of Dentsply.

Q1 Fiscal Year 2023 Earnings Release

On May 10, 2022, Dentsply released its fiscal first-quarter 2022 results for the quarter ending March 2022. The Company reported an earnings-per-share (EPS) profit of $0.52 excluding non-recurring items missing consensus analyst estimates for a profit of $0.54 by (-$0.02). Revenues fell (-6.1%) year-over-year (YoY) to $45 million missing the consensus analyst estimates of $980 million. Dentsply CEO John Groetelaars stated, “The first quarter was a challenging quarter, and our financial performance and revised outlook reflect the impact of larger-than-expected macroeconomic headwinds and lower-than-expected performance in the United States. Despite these challenges, organic growth in Europe was robust, demand remains strong, and our teams are working diligently to reduce lead times to address supply chain challenges.”

Downside Guidance

Dentsply issued downside guidance for fiscal full-year 2022 EPS between $2.35 to $2.55, down from $3.05 to $3.25 in previous guidance, versus $2.79 consensus analyst estimates. Fiscal full-year 2022 revenues are expected to come in between $4.1 billion and $4.2 billion, down from $4.3 billion to $4.4 billion in previous estimates) versus $4.24 billion consensus analyst estimates.

Conference Call Takeaways

Interim CEO Groetelaars admitted that Q1 was a disappointing quarter that impacted global supply chain disruption and “unfavorable” foreign exchange rates. The U.S. was the worst hit as Europe delivered 7% organic growth driven by SureSmile and implants. The total clear aligner business saw double-digit sequential growth in the quarter. The operating margin was 15.9% impacted by lower manufacturing volume and inflationary pressures. Dentsply Interim CFO Barbara Bodem provided more insight into the numbers. Organic sales declined (-1.4%) in fiscal Q1 2022 as sales declined (-6.1%). Regions outside of the U.S. posted health growth. Supply chain disruptions impacted most notably in imaging despite strong demand as evidenced by its high order backlog. Byte unique visitor traffic hit an all-time high in March 2022. Gross margins fell 280 bps. She pointed out, “We attribute approximately 60% of the year-over-year decline to the transitory macro challenges of foreign exchange, inflationary pressures, and the impact of COVID in China. As a result, adjusted earnings per share was $0.52 versus $0.72 in the prior-year quarter.” Patient volume softness was attributed to COVID-19 notably in China. She still expected fiscal full-year 2022 margins to recover back above 17%.

XRAY Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily frames provides a clearer view of the landscape for XRAY stock. The weekly rifle chart peaked at the $49.29 Fibonacci (fib) level before plunging. The weekly rifle chart downtrend has a falling 5-period moving average (MA) at $39.48 with weekly lower Bollinger Bands (BBs) at $32.90. The weekly stochastic is flat just below the 10-band. The weekly market structure low (MSL) triggers a breakout through $40.12. The daily rifle chart has a make or break with a flat 5-period MA at $38.19 and 15-period at $39.21 as stochastic attempts to form a mini pup. The daily lower BBs sits at $35.62. The daily 50-period MA resistance sits at $45.02 and upper BBs at $43.76. Prudent investors can wait for opportunistic pullback levels at the $35.87 fib, $33.91 fib, $33.06 fib, $31.58 fib, $30.23 fib, $29.43 fib, $27.46 fib, and the $26.20 fib level. Upside trajectories range from the $45.17 fib up to the $52.13 fib level.