DENTSPLY Stock Is Likely To Offer Superior Returns Over This Pharmaceuticals Company

We think that DENTSPLY stock (NASDAQ: XRAY), a dental equipment company, is currently a better pick than Teva Pharmaceuticals stock (NYSE: TEVA), despite it being the more expensive of the two, trading at 2.0x trailing revenues compared to 0.5x for Teva. Even if we were to look at the P/EBIT ratio, XRAY stock appears to be more expensive, with a 23x P/EBIT ratio compared to 6x for TEVA stock. The gap in the valuation of these two companies can be attributed to DENTSPLY’s superior revenue growth and better debt position, as discussed below. We compare these two companies due to their similar market capitalizations.

Looking at stock returns, Teva’s -12% return is comparatively better than DENTSPLY’s -38% change over the last twelve months. This compares with 3% growth in the broader S&P 500 index. While Teva’s stock has been weighed down due to concerns around the pricing environment and liabilities arising from opioid claims, DENTSPLY stock plunged 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 TEVA 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 DENTSPLY vs. Teva Pharmaceuticals: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. DENTSPLY’s Revenue Growth Has Been Stronger

• DENTSPLY’s revenue growth of 27% over the last twelve months is much better than a 6% decline for Teva.
• Looking at a longer time frame, DENTSPLY’s sales grew at an average growth rate of 3.7% to $4.3 billion in 2021, compared to $4.0 billion in 2018, while Teva saw its revenue decline at an average rate of 4.5% to $15.9 billion in 2021, compared to $18.3 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.
• Teva’s sales have been impacted by increased competition, pricing pressure, and unfavorable foreign exchange. The company sees a rapid decline in Copaxone’s sales. Copaxone garnered only $577 million in 2021 sales, compared to $1.8 billion in 2018, primarily due to generic competition.
• However, as we look forward, Teva is expected to benefit from its biosimilar for Bristol Myers Squibb’s Revlimid.
• Our DENTSPLY Revenue and Teva Pharmaceuticals Revenue dashboards provide more insight into the companies’ sales.
• Looking forward, DENTSPLY’s revenue is expected to grow faster than Teva’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 3.9% CAGR for Teva, 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. Both Are Equally Profitable, But DENTSPLY Offers Lower Risk

• DENTSPLY’s operating margin of 8.7% over the last twelve-month period aligns with 8.8% for Teva.
• This compares with 9.0% and -2.6% figures seen in 2019, before the pandemic, respectively.
• DENTSPLY’s free cash flow margin of 15% is better than 4% for Teva.
• Our DENTSPLY Operating Income and Teva Pharmaceuticals Operating Income dashboards have more details.
• Looking at financial risk, Teva has a significant debt of $23 billion, resulting in debt as a percentage of equity of over 200%, much higher than just 24% for DENTSPLY, while its 4% cash as a percentage of assets aligns with that of DENTSPLY, implying that DENTSPLY offers lower financial risk compared to Teva.

3. The Net of It All

• We see that DENTSPLY has demonstrated better revenue growth, is equally profitable, has a better debt position, and has a similar cash cushion compared to Teva, primarily explaining the difference in valuation of these 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, despite its higher valuation.
• The table below summarizes our revenue and return expectations for DENTSPLY and Teva over the next three years and points to an expected return of 59% for DENTSPLY over this period vs. a 16% expected return for Teva, implying that investors are better off buying XRAY over TEVA, based on Trefis Machine Learning analysis – DENTSPLY vs. Teva Pharmaceutical – which also provides more details on how we arrive at these numbers.

While XRAY stock may outperform TEVA, 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 5/5/2022
[2] Cumulative total returns since the end of 2016

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