Dentsply Sirona

Dentsply Sirona delivered revenue and adjusted EPS declines of 4% and 1%, respectively, during the second quarter. Both figures came ahead of FactSet consensus. Full-year guidance for revenue ($3.5-3.6 billion) and EPS ($1.40-1.50) is unchanged. Shares are down 3% after hours. 

Why it matters: Persistently tough market conditions, particularly in the Americas and Europe, Middle East, and Africa, continue to chip away at Dentsply's growth prospects as all three dental segments delivered a sales decline. Asia-Pacific fared the best out of the reported regions even though it still saw sales drop 1% year over year. That said, we think the sequential improvement in Connected Technology Solutions in the region for the second quarter in a row is promising. Management called out some new strategies deployed in the market that largely contributed to the growth, so we await how that plays out in the broader market.

The bottom line: We maintain our $14 fair value estimate for no-moat Dentsply and our valuation reflects 7.2x EV/2026 adjusted EBITDA. Shares look mildly undervalued though the upside is likely dependent on the strength of emerging green shoots and the durability of the recovery trajectory. A one-time tariff benefit of $44 million created a 500-basis-point tailwind to gross and EBITDA margin as well as $0.17 to EPS, so we lifted our 2026 figures to account for the impact. But these changes were immaterial to our valuation and our assumptions on the underlying business remain unchanged. All in, we view Aug. 6 results as indicative of a business continuing to navigate a depressed market. While certain regions and product categories showed encouraging momentum, we think the firm remains several quarters away from broad-based growth across its portfolio.

We maintain our $14 fair value estimate for no-moat Denstply.

Our long-term sales assumption relies on continued innovation by the firm—which allocates 4% of sales to research and development—as well as long-term macro trends including an aging population and an increasing demand for aesthetic dentistry. We forecast low-single-digit sales growth for the equipment business, comprising treatment centers and imaging equipment and the consumables business. We think the CAD/CAM business is poised to grow at a higher rate—midsingle digits over our forecast period—as more dentists adopt digital solutions and more patients seek chairside solutions that require less seat time. While we believe less than 20% of dentists in the US have full chairside solutions at their practices, with the remaining workforce employing dental labs as needed, we expect this number to climb. Dentsply Sirona might not fully reap the benefits of this trend, given that it mainly plays in the premium category and there are many value-based brands, but we still expect it to enjoy tailwinds from the increasing prevalence of digital dentistry. We expect the firm’s orthodontic and implant solutions to grow by mid- to high single digits over the next five years. While clear aligners make up roughly 10% of all orthodontic case starts today, we expect this number to climb over the next five years as prospective patients learn the benefits of clear aligners and their clinical viability. For implantology, we expect healthy top-line growth thanks to the firm’s investment in this category. Recently, the Chinese implant market and its volume-based procurement policy have raised many uncertainties. VBP tenders volume for an entire market to the lowest-priced seller, and we have seen this policy reduce the average selling price for implants by 40%-50%. Dentsply Sirona was among many healthcare firms affected by this policy, but we believe the pricing headwind is offset by the extra volume that the firm won through the process.

We expect a moderate year-over-year margin increase as high-margin businesses like implant and orthodontic solutions continue to make up a larger portion of sales and the firm lowers operating expenses. Management has been very vocal about wanting to better integrate Dentsply and Sirona and has listed a number of actions that could help achieve this: optimize its enterprise resource planning systems to one platform, simplify the manufacturing footprint, and reduce distribution centers. While these efforts could take a number of years to complete, we believe they will harmonize the firm and help drive productivity and efficiency.

We do not believe Dentsply Sirona has an economic moat because we do not believe the company possesses any structural advantages sufficient to generate excess returns over the next 10 years.

Dentsply Sirona is one of the largest manufacturers of dental equipment and supplies. The firm has a strong presence in dental CAD/CAM and has long reaped the benefits of being a first mover. It offers some of the most technologically advanced products on the market, including its flagship Cerec, a full chairside workflow for restorations, implantology, and orthodontics that enables a complete procedure in a single visit. Many of the firm’s products play in the premium category and boast high speed, accuracy, and accessibility. However, the wide adoption of CAD/CAM in dentistry over the last two decades has led to an emergence of new competitors, making the industry highly fragmented and competitive. In the intraoral scanner market, for example, we see attractive offerings from 3Shape, Medit, and Align Technology, with their scanners at prices 25%-40% lower than Dentsply Sirona’s latest Primescan. While we believe Dentsply Sirona’s Cerec system is valuable if a doctor owns an entire suite of machines under the workflow, it loses its competitive advantage if only parts of the portfolio are adopted, since it is largely a closed system. For instance, Primemill can only accept files that were scanned using Primescan, unless scans from a third-party scanner are converted to a Cerec-compatible format using the firm’s inLab software. We believe this process is too cumbersome and takes away from the convenience aspect that Cerec emphasizes, swaying doctors to either fully adopt Dentsply Sirona’s solutions or go with different options. Furthermore, we believe promoting the full Cerec workflow becomes increasingly difficult as its premium price tag targets the very high end of dental practices, and competitors like Carestream and Planmeca offer comparable open-system products at cheaper prices. We think that the growth of lower-priced competitors will continue to erode intangible competitive advantages that specialty players like Dentsply Sirona once possessed.

In orthodontics and implantology, we think Dentsply Sirona faces stiff competition and will struggle to displace category leaders. In orthodontics, the firm offers SureSmile, a doctor-led clear aligner solution that Dentsply acquired through its purchase of OraMetrix in 2018. However, we still see a challenging landscape as Invisalign, a clear aligner from Align Technology, has 90% of the US market. SureSmile’s 2024 annual revenue was about $250 million compared with Invisalign’s $3.2 billion. In implantology, a fragmented market with a few key players, we think Dentsply Sirona faces stiff competition. Straumann controls roughly 30% of the global implant market, and Envista holds the second-highest share at around 25%. Henry Schein and Dentsply Sirona are the next-largest players, both controlling a low-teens share of the market, but we believe Dentsply Sirona has lagged its peers in terms of innovation. It has made efforts to improve its implant business by launching PrimeTaper in 2021 and OmniTaper in 2023 as well as promoting education among doctors and its salesforce, but we still think its portfolio lacks technical superiority to merit a moat.

Expertise and leadership in digital dentistry position Dentsply to enjoy secular tailwinds as more doctors move away from dental labs and adopt chairside solutions.

Growing adoption of dental care in key European markets and emerging countries enables Dentsply to widen its end markets and drive growth across regions.

Management has restructured to better integrate Dentsply and Sirona and create a more harmonious and simplified operation, which could lower operating expenses over the long term.

Dentsply’s CAD/CAM products mainly play in the premium category. A wide adoption of digital dental solutions has led to more affordable options on the market, making the space more fragmented and competitive.

Market leaders in implantology and orthodontics have decades of experience and are well connected with professionals, making it difficult for Dentsply to displace them and garner share.

US dental market weakness continues to weigh on Dentsply's growth, and the region's slow recovery could continue to damp the firm's stock.