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On Jun 17, we retained DENTSPLY International Inc. (XRAY - Analyst Report) at Neutral following its first-quarter results. Although the first-quarter results were not impressive, we are confident that the company’s strong business fundamentals should boost overall growth.

Why the Retention?

On May 9, DENTSPLY posted first-quarter 2013 adjusted earnings per share of 52 cents (flat year over year), which missed the Zacks Consensus Estimate of 56 cents. Revenues grew 2.2% year over year to $732.1 million, marginally missing the Zacks Consensus Estimate of $733 million. Year-over-year growth was backed by healthy internal sales across all regions.

DENTSPLY’s earnings have also managed to beat the Zacks Consensus Estimate in three out of the last four quarters with an average surprise of 1.85%. Over the past 60 days, the Zacks Consensus Estimate has moved down by 2.1% to $2.37 for 2013 and 2.6% to $2.61 for 2014.

DENTSPLY’s diversified product range and significant investments in product innovation should help it expand its share in the dental market. Debt level continues to decrease and the company plans to invest in accretive acquisitions as well as leverage investor returns in 2013. Additionally, the company has gained back significant market share in the orthodontic space but henceforth it might be difficult to capture further share.

Although the Astra Tech acquisition has bolstered DENTSPLY’s footprint in the dental implants market, we are concerned over integration-related glitches, which are affecting the company’s margins. The company has raised prices across the board to offset the impact of the medical device excise tax.

However, the weak dental market condition offers only modest growth prospects. Austerity measures in southern Europe due to geopolitical uncertainty led management to lower its full-year 2013 guidance. We remain on the sidelines given the lack of near-term visibility.

Other Stocks to Consider

Other medical stocks, which are expected to do well include CONMED (CNMD - Analyst Report), The Cooper Companies (COO - Analyst Report) and West Pharmaceuticals (WST - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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