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On Tuesday, Morgan Stanley (NYSE:MS) downgraded DENTSPLY SIRONA (NASDAQ:XRAY) stock from Overweight to Equalweight, significantly reducing the price target to $14 from the previous $21. The change in rating follows a challenging period for the company, with its shares declining 21% year-to-date, underperforming both its industry group and the broader S&P 500 index.
The downgrade was attributed to several factors impacting the company. DENTSPLY SIRONA was the worst performer in its sector in 2024, with a 47% decline compared to the dental group’s 21% and the S&P 500’s 23% gain. Analysts noted that the company’s performance was mainly affected by the macroeconomic and policy environment, as well as its decision to restructure the Byte business model to focus on treatments requiring more in-person dentist oversight as opposed to at-home solutions.
Despite the market’s low expectations for DENTSPLY SIRONA, particularly in the areas of imaging and implants, investors are keen on updates regarding the orthodontics business, which includes Byte and SureSmile. Further interest lies in the company’s ability to return to market growth in implants and the effectiveness of its cost-cutting measures. Morgan Stanley analysts are not anticipating positive revisions to the fiscal year 2025 guidance, which forecasts -4% to -2% organic growth.
The company has recently introduced Primescan 2, and updates on distributor relationships and visibility within dental end markets are of interest to investors. Additionally, the ongoing restructuring efforts, including SKU rationalization, are being closely watched. DENTSPLY SIRONA has limited tariff exposure, with minimal reliance on raw materials from China, Canada, and Mexico, and maintains global manufacturing sites, particularly in Europe.
Currently, DENTSPLY SIRONA is operating with an interim CFO, Herman V. Cueto, as the search for a permanent CFO continues since August 2024. The company is also exploring strategic alternatives for its Wellspect Healthcare business, which represents a significant portion of its revenue and operating income, to concentrate its resources on the dental sector. For deeper insights into DENTSPLY SIRONA’s financial health and future prospects, InvestingPro subscribers can access comprehensive analysis, including 8 additional ProTips and detailed valuation metrics in our exclusive Pro Research Report.
In other recent news, DENTSPLY SIRONA Inc. has entered into a $435 million bridge loan agreement with Goldman Sachs Bank USA to enhance its financial flexibility. This loan will be used to repay existing obligations and support general corporate purposes. Meanwhile, Moody’s Ratings revised DENTSPLY SIRONA’s outlook to negative from stable, citing growth challenges and earnings uncertainty, though it affirmed the company’s Baa2 issuer rating. Moody’s noted that the company has faced weak sales in high-dollar equipment due to high interest rates, impacting its overall performance. Despite these challenges, the growth outlook for orthodontics and consumables remains favorable.
Additionally, DENTSPLY SIRONA announced the appointment of David Ferguson as Senior Vice President, Global Business Unit Leader, bringing his extensive experience from roles at GE Healthcare and other firms. In related industry news, Needham analysts downgraded ZimVie Inc. from a Buy to a Hold rating, reflecting concerns over the dental market’s growth prospects and weak U.S. consumer sentiment. The downgrade highlights the broader challenges facing the dental industry, affecting companies like ZimVie and DENTSPLY SIRONA. Bank of America analysts reported a positive trend in GLP-1 prescription growth for March, suggesting an improvement in supply and continued demand for these treatments.
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