Thursday, May 06, 2010

Sirona Dental Systems (NASDAQ:SIRO): Upgraded at Credit Suisse, J.P. Morgan defending - bounce?

Sirona Dental Systems (NASDAQ:SIRO) is getting very positive analyst commentary following yesterday's 14% decline in share price.

- Credit Suisse is upgrading the name to Outperform from Neutral while raising their price target to $45 (prev. $38) saying the the harsh reaction to F2Q earnings was unwarranted, creating an attractive opportunity. They believe the current product cycle has more legs than they originally anticipated, and will ultimately drive operating profit (and earnings) above management’s guidance range. SIRO shares currently trade at only 13.2x their C11 EPS estimate, ranking it as the cheapest stock in the dental sector. CSFB has increased their F10, F11 and F12 estimates to reflect their updated views on the product cycle.

Reaction to F2Q Earnings Unwarranted: Shares of SIRO traded down 14% yesterday in reaction to F2Q results. CSFB believes the reaction was the result of several factors including:1) High expectations heading into the quarter, 2) Lower than expected organic growth in CADCAM (CEREC), and 3) More difficult growth comps in the 2HF10.

Product Cycle Still Has Legs: CSFB believes the recent innovations in key product lines GALILEOS, CEREC and TENEO are all being well received by the market. Although we are approaching the anniversary of these 2009 product launches, they believe the product cycle will last longer than four quarters, as these products are innovative and currently dominate their respective categories.

Guidance Seems Overly Conservative: Mgt raised its F10 rev guidance to 6- 8% from 4-6%, and its op profit guidance to $178-$184M from $170-$176M. CSFB believes investors have focused too much on the deceleration in 2HF10 growth rates which are influenced by timing of 2009 IDS show and various product launches, and have not focused enough on 2HF10 guidance which implies only $73-$79M in 2HF10, compared to the $105 generated in 1HF10.

Cheapest Stock in Dental Sector: Based on their revised estimates and the 14% pullback, SIRO is trading at only 13.2x CSFB C11 EPS estimate of $2.80.

Estimates & Valuation: CSFB is increasing their F10, F11 & F12 EPS ests to $2.59, $2.73 and $2.98 (from $2.38, $2.58 & $2.86), respectively. They are raising their PT to $45 (from $38) which pegs a 16x multiple on their C11 EPS est of $2.80.

- J.P. Morgan is reiterating their Overweight rating on the name and is raising their price target to $45 (prev. $38) noting that although the stock reaction (-13.5%) might indicate otherwise, SIRO reported strong F2Q results, with revenues of $190.1mm (+15.4%, +11.0% LC) exceeding JPMe ($182.7mm, +11% y/y) and the Street ($187.2 mm, +14% y/y), driven by growth in all segments, while EPS also showed significant upside (cash EPS of $0.66 vs. JPMe of $0.43 and consensus of $0.48).

Increased guidance, which calls for revenues +6-8% LC y/y, vs. +4-6% y/y before, reflects traction from new products and stable end market conditions as well as the realities of more difficult 2HCY10 comps. More importantly, in JPM view, investor concerns over the softness in CAD/CAM, which grew 6.3% (vs. +29.3% last quarter), appear largely overdone as the lighter growth reflected a difficult comp, given the launch of CEREC AC last year. All in, they remain encouraged by another beat and raise quarter, and although expectations had recently increased with HSIC and DHR dental results, the firm sees little to change their favorable thesis as they increase estimates and their price target goes from $38 to $45.

Notablecalls: With the stock down 6pts yesterday, I would expect these comments to produce a nice bounce in the name.

I'm guessing the stock can reach $39 level today if not somewhat higher.


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