Dentsply International Inc. (XRAY) Annual Valuation – 2014

200px-Dentsply_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Dentsply International (XRAY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): DENTSPLY International Inc. (DENTSPLY) is a designer, developer, manufacturer and marketer of a range of dental products. The Company operates in four segments, all of which are primarily engaged in the design, manufacture and distribution of dental products in four principal categories: dental consumables, dental laboratory products, dental specialty products and consumable medical device products. DENTSPLY conducts its business in over 120 foreign countries, principally through its foreign subsidiaries. It operates in Canada, the European market, which includes Germany, Switzerland, France, Italy, and the United Kingdom. It also has a market presence in Central and South America, South Africa and Pacific Rim. It has also established marketing activities in Moscow, Russia. On August 31, 2011, the Company acquired Astra Tech AB. In November 2013, the Company acquired QAHR, a direct dental selling organization with headquarters in Hong Kong and operations also in mainland China.

XRAY Chart

XRAY data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $45.46
MG Value $33.45
MG Opinion Overvalued
Value Based on 3% Growth $31.76
Value Based on 0% Growth $18.62
Market Implied Growth Rate 6.13%
Net Current Asset Value (NCAV) -$9.62
PEmg 20.76
Current Ratio 1.24
PB Ratio 2.55

Balance Sheet – 3/31/2014

Current Assets $1,202,300,000
Current Liabilities $967,400,000
Total Debt $1,065,500,000
Total Assets $5,089,400,000
Intangible Assets $3,072,700,000
Total Liabilities $2,566,400,000
Outstanding Shares 141,800,000

Earnings Per Share

2014 (estimate) $2.49
2013 $2.16
2012 $2.18
2011 $1.70
2010 $1.82
2009 $1.83
2008 $1.87
2007 $1.68
2006 $1.41
2005 $0.28
2004 $1.28

Earnings Per Share – ModernGraham

2014 (estimate) $2.19
2013 $2.01
2012 $1.91
2011 $1.78
2010 $1.79
2009 $1.65

Dividend History

XRAY Dividend Chart

XRAY Dividend data by YCharts


Dentsply International is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has issues with the low current ratio and the high PEmg and PB ratios while the Enterprising Investor is concerned with the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  From a valuation side of things, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.79 in 2010 to only an estimated $2.19 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 6.13% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Dentsply International (XRAY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Dentsply International (XRAY) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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