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DENTSPLY Remains at Neutral

Zacks Equity Research

We have retained our Neutral recommendation on DENTSPLY International Inc. (XRAY) with a price target of $42.

Its third-quarter 2012 adjusted earnings per share of 51 cents inched past the Zacks Consensus Estimate of 50 cents per share and exceeded the year-ago adjusted earnings of 46 cents (up 10.9%).

Revenues jumped 12.3% year over year to $695.7 million, driven by acquisitions and strong internal sales in the U.S., Europe as well as the Rest of World categories. However, revenues fell short of the Zacks Consensus Estimate of $712 million.

Led by the prevailing macroeconomic scenario and the company’s performance, DENTSPLY expects to generate adjusted earnings per share in the band of $2.19–$2.24 for 2012, compared with the earlier band of $2.18—$2.24.

Based in Pennsylvania, DENTSPLY International is a global leader in the design, development, manufacture and marketing of dental consumables, dental laboratory products and dental specialty products. Despite macroeconomic headwinds, it boasts solid internal growth on the back of innovative new products and consistent strong performance.

The company also has a strong international presence. Emerging markets offer healthy growth opportunity on a long-term basis as they remain vastly untapped.

Further, the acquisition of Astra Tech has reinforced the company’s leadership in the global dental market and broadened its product portfolio. DENTSPLY is successfully integrating the acquired operation.

Moreover, the re-launch program of the orthodontics products line is gathering momentum and we expect it to gain market share and boost internal growth going forward.

However, an overall soft macro economy, especially a slow global dental implants market, remains a potential downside for DENTSPLY. Austerity measures in southern Europe due to geopolitical uncertainty also remain a concern.

Although the company’s domestic U.S. market has shown signs of recovery lately, demand for dental products are slow mainly due to the troubled U.S. labor market, currency fluctuation and the upcoming Med-tech tax.

DENTSPLY operates in highly competitive markets and hence, we remain cautious about the aggressive competition from players like Sirona Dental Systems (SIRO). We currently have a short-term Zacks #3 Rank (Hold) on DENTSPLY.

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