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The U.S. Department of Defense (DoD) has awarded DENTSPLY International Inc. (XRAY - Analyst Report) a one-year contract worth $13.5 million to supply medical and surgical products to the Army, Navy, Air Force, Marine Corps, and federal civilian agencies. The contract is slated to end on Aug 20, 2014. However, there is additional provision for the agreement to extend for another six years.

We believe that the deal with Pentagon should ensure a steady stream of revenues for DENTSPLY in the backdrop of a challenging macro environment. In the last reported quarter, XRAY’s revenues were almost flat year over year at $761.0 million. However, excluding precious metal content, revenues grew 2.5% (up 2.7% at constant exchange rate) to $716.0 million, driven by solid internal sales in the U.S. and decent growth across all other regions.

With a market cap of $6.01 billion, DENTSPLY is a leading dental products maker based in York, Pa. The company’s diversified product range and significant investments in product innovation should help it expand share in the dental market. Moreover, management plans to invest in accretive acquisitions as well as leverage investor returns in 2013.

However, the weak global 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 earnings guidance.

Based on the current global dental market trends (particularly Europe) along with the impact of fluctuating currency rates, DENTSPLY lowered its 2013-adjusted-earnings per share expectation to the band of $2.33—$2.38 compared with the earlier guidance of $2.33—$2.43. The Zacks Consensus Estimate for 2013 earnings of $2.35 lies within the guided range.

XRAY has a Zacks Rank #3 (Hold). While we remain on the sideline regarding DENTSPLY, other medical stocks such as Henry Schein (HSIC - Analyst Report), Align Technology (ALGN - Analyst Report) and The Cooper Companies (COO - Analyst Report) are worth considering. All these stocks carry a Zacks Rank #2 (Buy).

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