Christine Poole Envista Holdings NVST-N TOP PICK Oct 13, 2021

She started buying this last year. They revamped their dental product lines, which are doing well. Dental care has room to grown in emerging, markets, though mature in North America. She sees 10% upside one year out. Likes it.

(A Top Pick Sep 14/21, Down 23%) A leading provider of dental products and services. A spin-off from Danaher. A reason NVST is down is that dental expenses are only partially (50%) covered by plans, so people may defer going to the dentist. Also, 15% of their revenues are from Russia and China (impacted by lockdowns). That's a hiccup. Is trading cheaply now, and she likes the long-term prospects. NVST is introducing new popular products like new implants.

Increased investments in R&D. Divested low-growth areas, repositioning for the future. Dental visits were down during Covid. Headwinds in Russia and China have hurt. She's underwater, but management is doing the right things. In US, dental costs are more discretionary. Demographics and low EM penetration rates are tailwinds.

NVST is a $4.5B market cap company serving the dental industry. It is reasonably-priced at 14X earnings. Net debt of $800M is fairly high compared with $235M cash flow in the last year. Cash flow is decent, and steady, but we do note that sales are essentially the same level as nearly eight years ago. It has been consistently profitable, but EPS next year is expected to be slightly lower than it was in 2016. Even with no growth, the company pays no dividend. Insiders own less than 0.5%. On the positive side, sharecount has not changed in many years. It typically beats estimates, but there is very little excitement here. We would be more interested in it as a value stock if debt was lower. As it stands, we would pass. 
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Numerous headwinds. Russian war, economic softening, price competition, higher interest rates, war in Israel disrupting supply. Not clear when these clouds will dissipate. She sold, took the loss, bought more TMO.

Sold non-core businesses. With interest rates rising, dental offices delayed expansion plans. Operating in Russia, slowdown there. Liner business for adults weakened. May need to review core grow and margin targets. See her Top Picks.

She sold. Late to the game in launching a clear liner in lieu of braces. Slowdown in economy and household income means dental visits get cut. She misjudged how cyclical dental industry can be, not everyone gets coverage. Russian business hurt, China slowed, Israel manufacturing disrupted. Don't buy the dip.