We think that DENTSPLY stock (NASDAQ: XRAY), a dental equipment company, is currently a better pick than ConMed (NASDAQ: CNMD), a medical devices company that specializes in products for orthopedic and general surgery, given its better prospects and a comparatively lower valuation. XRAY stock is trading at 1.9x trailing revenues compared to 3.3x for CNMD stock. The gap in the valuation of these two companies can be attributed to ConMed’s superior revenue growth and profitability seen over the recent years.
Looking at stock returns, ConMed’s -19% return is comparatively better than DENTSPLY’s -45% change over the last twelve months. This compares with a -3% change in the broader S&P 500 index. DENTSPLY stock plunged over 21% over the last month, after the announcement of changes in the top management and Q1 ’22 results falling below the consensus estimates.
While both the companies are likely to see continued top-line expansion, DENTSPLY is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that XRAY stock will offer better returns than CNMD stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of ConMed vs. DENTSPLY: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. ConMed’s Revenue Growth Over Recent Years Has Been Stronger
- DENTSPLY’s revenue growth of 27% over the last twelve months is better than a 17% decline for ConMed.
- Looking at a longer time frame, DENTSPLY’s sales grew 7.5% to $4.3 billion in 2021, compared to $4.0 billion in 2018, while ConMed saw its revenue grow 11.1% to $1.0 billion in 2021, compared to $0.9 billion in 2018.
- After witnessing a decline in 2020 due to the pandemic’s impact, DENTSPLY’s sales have seen a rebound over the recent quarters. The sales growth is being driven by the reopening of dental clinics and a rise in patient visits, a trend expected to continue going forward.
- ConMed’s revenue growth over the recent years has been affected due to the impact of the Covid-19 pandemic on its business, as hospitals and other healthcare institutions deferred non-urgent surgeries. ConMed derives most of its revenues from single-use products, which are expected to be recurring. This is likely to result in stable top-line growth over the coming years.
- Our DENTSPLY Revenue and ConMed Revenue dashboards provide more insight into the companies’ sales.
- Looking forward, DENTSPLY’s revenue is expected to grow faster than ConMed’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 11.7% for DENTSPLY, compared to a 5.5% CAGR for ConMed, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
2. ConMed Is More Profitable And It Has A Better Debt Position
- DENTSPLY’s operating margin of 8.7% over the last twelve-month period is lower than 14.3% for ConMed.
- This compares with 9.0% and 12.2% figures seen in 2019, before the pandemic, respectively.
- DENTSPLY’s free cash flow margin of 15% is better than 11% for ConMed.
- Our DENTSPLY Operating Income and ConMed Operating Income dashboards have more details.
- Looking at financial risk, DENTSPLY’s debt as a percentage of equity of 25% is higher than 20% for ConMed, while its 4% cash as a percentage of assets is higher than 1% for ConMed, implying that ConMed has a better debt position and DENTSPLY has more cash cushion.
3. The Net of It All
- We see that ConMed has demonstrated a slightly better revenue growth over the recent years, and it is more profitable. It also has a better debt position, primarily explaining the difference in the valuation of the two companies.
- Looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe DENTSPLY is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for DENTSPLY and ConMed over the next three years and points to an expected return of 50% for DENTSPLY over this period vs. a 9% expected return for ConMed, implying that investors are better off buying XRAY over CNMD, based on Trefis Machine Learning analysis – ConMed vs. DENTSPLY – which also provides more details on how we arrive at these numbers.
While XRAY stock may outperform CNMD, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. Masco.
|S&P 500 Return||-3%||-16%||80%|
|Trefis Multi-Strategy Portfolio||-4%||-20%||218%|
 Month-to-date and year-to-date as of 5/16/2022
 Cumulative total returns since the end of 2016
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