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Why Dentsply Sirona Is Soaring Today

What happened

Shares of Dentsply Sirona (NASDAQ: XRAY) were soaring 16.2% higher as of 12:07 p.m. EST on Friday. Investors were pleased with the dental products company's preliminary fourth-quarter and full-year 2018 update announced earlier in the day.

Dentsply Sirona reported Q4 revenue of $1.06 billion, higher than the $1.03 billion average analysts' estimate. The better news, though, was that the company anticipates adjusted earnings per share in 2019 between $2.25 and $2.40, well above the consensus Wall Street forecast of $2.17 per share.

Dentist with patient
Dentist with patient

Image source: Getty Images.

So what

There's no question that 2018 wasn't a great year for Dentsply Sirona. It was one of the three worst-performing healthcare stocks in the entire market halfway through the year. By the end of 2018, Dentsply Sirona's share price had plunged more than 40%.

Dentsply Sirona CEO Don Casey acknowledged that 2018 was disappointing, but he said the company was "executing a major restructuring plan" to get back on track. This plan includes consolidating some operations, selling underperforming businesses, and reducing its staff by 6% to 8%.

While some of these changes are painful, it looks like they could help right the ship this year. The downside is that Dentsply Sirona's revenue will be negatively affected to some extent. The company expects 2019 revenue between $3.95 billion and $4.05 billion, around $70 million lower because of some of the restructuring moves that have already been completed.

However, the cost reductions made by Dentsply Sirona will improve margins. The midpoint of the company's 2019 earnings guidance reflects a year-over-year increase of 15.5%.

Now what

The main challenge for Dentsply Sirona now is to execute on its strategy. Its fortunes could also be helped by launches of new products this year.

However, the stock continues to trade at a premium with a forward price-to-earnings multiple of more than 22. Most investors might prefer to sit on the sidelines while Dentsply Sirona turns things around.

More From The Motley Fool

Keith Speights has no position in any of the stocks mentioned. The Motley Fool is short shares of Dentsply Sirona. The Motley Fool has a disclosure policy.