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XRAY - Dentsply Sirona Inc


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  • 4 months later...

Starting looking at 10Ks from 2016 to get a feel earlier today.

 

Sirona seemed to overstate earnings and Dentsply seemed to understate earnings.  I would have to do more work to see if Dentsply overpaid, but my guess is they may have.

 

The incoming CEO appears solid, but it's unclear if he's used to righting a ship or maintaining a ship that is already moving in the right direction.

 

Prior to the merger, Dentsply's revenues were on steady decline, though not as bad, Sirona didn't seem to be hitting it out of the park as far as sales growth is concerned.

 

From what I understand, the merger itself was to create the largest in the dental world for purpose of taking advantage of multiple sales channels.  If you buy from them, you get the best price for the most products.  If you go to 3m for this product or Danaher for that product, you might end up paying a lot more for same end results...a chair from one can't be that different from a chair from another?  They both should be comfortable?

 

That said, it might be that there is a steep learning curve for dentists to adopt new products other than the chairs? 

 

Maybe Align has better technology?  What if Align drops pricing to take sales away from XRAY's braces business? 

 

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  • 3 months later...

I started a position in the name this afternoon...seems like a lot of bad news is priced into this one right now!  Large buyback, cash flow and compelling CEO!

 

the current pricing indicates that the combined company should show synergies, how are you projected earnings or cash flow growth? 

 

I think today's price today is a fair one despite the decline...private markets might price where the stock is today.  One would assume that companies in private markets should trade at a discount to public, but it seems that private markets, today, might not.

 

That said, if XRAY shows 10% revenue growth in 2018, for example, the stock should move accordingly and there gross margins should move in line? 

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I used to own ALGN, it went up over 100% in a year and I foolishly sold early, and missed the next 200%.  D'oh!

 

XRAY has a good business but I don't think they will take market share from ALGN.  ALGN used to use trays with goop to make molds, which you had to put in the patient's mouth and hold it there.  ALGN now makes a 3d scanner that can take measurements with a pen like device and is more comfortable. Is there a way for a dentist to uses ALGN's scanner to make XRAY aligners?

 

ALGN has a huge network of US dentists and is expanding internationally.  THey've spent a lot of money to get Invisalign taught at dental schools to dental students.  If you've used the product in school, and at your practice, what incentive do you have to switch?  If it's a lower price, ALGN get those customers with the SmileDirect program (which is a little cheaper than INvisalign, but customers use the molds and mail them back and get the alingers in the mail).

 

Also, ALGN lost a couple of patent lawsuits with the aligner trays, but still have lots or patents with regard to the software, so lot's more potential ammunition in court if someone else seems like a competitor.  ORthoClear is pretty much litigated out of business by ALGN even though they won their lawsuit, IIRC.  But XRAY is much larger, so maybe it's worth it for them to fight it out.

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Dirt cheap, huge buyback, new CEO and management have guided down twice so expectations are very low...sticky business, and compelling valuation.  I also think the drop recently into the low $40s was basically panic selling and I didnt think the quarter was that bad at all...

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FWIW, I Spoke to my colleague that sold his company to XRAY, ran a major division of HSIC and now owns a smaller specialty dental company.  (mainly implants)  His gut reaction is this is a "wait and see" opportunity as the new CEO will be challenged to bring growth back to the business.  He doesn't have personal thoughts on the new CEO but this is a massive ship to steer back towards growth.  My friend is currently overseas and I didn't speak to him for long.  Just thought I'd add some color through a dental professional's gut reaction.  He is not an investor and had no comments on the fundamentals other then growth.

 

I would be happy to ask him high level questions about that sector and XRAY if that would be helpful.  The dental market is big but it's a small world where all the top execs seem to know each other. (handful of large companies and not much else between $100m and $1b+)  Could prove to be a helpful resource. 

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Interesting...

 

My point is not that this is an amazing company, and a 2x- 3x bagger from here, but rather that Mr Market has overshoot to the bottom given some recent developments, and the issues with the merger. 

 

I think you could see an activist in the name in short-order...someone who is operationally focused like a ValueAct, or Starboard IMHO.

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Interesting...

 

My point is not that this is an amazing company, and a 2x- 3x bagger from here, but rather that Mr Market has overshoot to the bottom given some recent developments, and the issues with the merger. 

 

I think you could see an activist in the name in short-order...someone who is operationally focused like a ValueAct, or Starboard IMHO.

 

I understand.  Just thought I would get a dental expert take on the situation.  He is not an investor but you can bet that other professional investors are doing similar channel checks.  If you folks have any questions, I would be happy to seek some answers. It's all unbiased.  I just happen to be good friends with a top dental guy.  I think if the market gets a whiff of execution by new mgmt, stock reacts very well.

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Dirt cheap, huge buyback, new CEO and management have guided down twice so expectations are very low...sticky business, and compelling valuation.  I also think the drop recently into the low $40s was basically panic selling and I didnt think the quarter was that bad at all...

 

Could you explain the dirt cheap part? I see 17x earnings, 4.5% FCF yield, mid single digit growth. it trades about where it should be, IMO.

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