What happened

Shares in dental and oral healthcare company Dentsply Sirona (NASDAQ:XRAY) soared 18.8% in March, according to data provided by S&P Global Market Intelligence. The move was largely down to a very well received set of fourth-quarter earnings released at the start of the month.

Following a disappointing 2018, the company is in turnaround mode with management determined to return to underlying revenue and earnings growth. For reference, Dentsply's net sales declined 1.8%, on an internal sales growth basis, to around $4 billion, with adjusted earnings per share down 24% to $2.01.

A woman receiving dental exam.

Image source: Getty Images.

The turnaround plan involves simplifying its organizational framework and consolidating business groups within its portfolio. In addition, management is restructuring the company by exiting some of its weaker businesses and "reducing our employee base by 6% to 8%," said CEO Don Casey in the earnings release.

In addition, the company suffered from $100 million of dealer destocking in 2018, but CFO Nick Alexos said "we have a high degree of confidence that this will be an issue that will be put behind us" during the Q4 earnings call.

In light of all this, internal sales growth is expected to be 4% to 5% in 2019 with adjusted EPS forecast to be in the range of $2.25 to $2.40, implying growth of between 12% and 19% compared to 2018.

So what

The guidance implies that Dentsply is well on a road to recovery that analysts believe will lead to $2.32 in EPS in 2019 and $2.64 in 2020. Based on the current stock price of around $50, that would put the stock's P/E ratio at 19 times earnings in 2020. That's still expensive compared to valuations in recent years, and it should be noted that dental consumables (around 45% of the company's fourth-quarter revenue) hasn't been a great market in recent years.

For example, 3M's oral care business has been weak in recent years. Danaher's traditional dental consumables and equipment businesses have also underperformed, and partly as a consequence, Danaher plans to spin off the dental segment later this year

All of which suggests it might not be so easy for Dentsply to hit its targets.

Now what

Investors will be closely watching the quarterly progress of the restructuring plans to judge whether the company can meet its internal expectations. If it can do that, then there's a case for buying the stock, but for that to happen, the company will need more than a little help from its end markets. As such, it's a good idea to keep a close eye on what others in the industry are reporting in the coming earnings season.

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