Dentsply: Often Overlooked, but Solid

For whatever reason, health-care companies focused on dental care just don't get a whole lot of attention. Maybe that's because there are relatively few publicly traded dental companies, or maybe it's because the dental market is seen as a stable but slow-growing sector. Whatever the reason, long-term investors in leading manufacturer DentsplyInternational (Nasdaq: XRAY  ) haven't exactly been hurting.

Fourth-quarter results aren't going to look all that great on first glance, but there's a little more going on beneath the surface. True, reported sales fell almost 4% and were still down more than 1% if you strip out the impact of precious metals. But if you go a few steps further and adjust for the business disruptions in Germany (caused by new government reimbursement practices), base business growth was in the positive mid-single digits.

Likewise on the profit side of the ledger, Dentsply incurred a charge for a facility closing that walloped reported operating income. True, gross margin and operating margin were still down year over year if you reverse the charges, and adjusted earnings growth was only about 9%, but I'm inclined to think this quarter (as well as the year) was an outlier for an otherwise solid company.

Overall, I like the dental industry. True, market growth is only on the order of the mid-single digits (a far cry from the market growth for cardiology companies like Medtronic (NYSE: MDT  ) ), but the market is very fragmented and there is a lot of demand for single-use consumables and disposables. In other words, even though there are competitors like Sybron (NYSE: SYD  ) to consider, there should still be ample opportunity for Dentsply to consolidate the industry, create new products, and improve margins and cash flow through efficiencies of scale.

When considering the stock, you pretty much have to decide whether you want to treat this year like an aberration or not. If you believe the company will get back to its reliable history of improving free cash flow and solid return on capital, the shares are somewhat attractive. Although ongoing sluggish sales growth might put a cavity in the stock, a return to form should make investors smile over time.

For more Foolish thoughts on health care:

• Biolase Brightens Outlook
• A Toothache at Sybron Dental
• Is It Safe for Patterson?

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).