NVST - Envista

[Broeb22]

Envista is coming public today at an approx. EV of $4.7 billion, with 2019E EBITDA of $417 MM (my estimate) for an 11 EV/EBITDA. 2019E Adj. Earnings of $265 MM, about 1.71 per share, so will start trading at about 13x Earnings.

 

The real question I still need to answer is what is on the horizon that either gives me hope or makes me pessimistic. It's kind of mixed right now. SmileDirectClub and other copycats seem to pose a threat for not just clear aligners sold through orthodontists but if they're actually getting rid of visits to orthodontists that dents the consumables revenue from teeth cleanings, X-rays, etc. and makes dentists less profitable which makes them less likely to purchase equipment such as chairs and lights, which Envista also sells. Some would say Envista should just get into the Direct-to-Consumer Aligner game, but that would be hard to do without alienating their core customer base, dentists and orthodontists. They're kind of in-between a rock and a hard place.

 

I've seen mixed reviews on SDC's products, but for less severe cases that would normally need braces they probably suffice.

 

https://www.forbes.com/sites/michelatindera/2018/05/02/bracing-for-competition-cheaper-challengers-enter-invisaligns-1-5-billion-market/#7c6966452392

 

On the plus side, Align Technology (ALGN) is losing patent protection for some of its products, so there may be opportunities for Envista to steal share.

 

Looking at their segment growth rates, Specialty Products is growing at mid-single digit rates while the Consumables and Equipment segment has been declining low-single digits.

 

It's interesting how from a macro perspective, dentistry and orthodontics should be in a sweet spot for long-term growth because most of the world still cannot afford the products or dentist visits. However, the western markets where dentistry is undergoing some disruption, are driving poor results in the short- to medium-term.

 

At 13x forward earnings, it's definitely interesting. 

 

 

 

 

[jwelborn93]

Has anybody looked at this one lately?  Trading at less than 7x LTM FCF right now.  Operationally, there's some wood to chop over the next few years to get margins back in line with 2016/2017 levels but strong FCF generator with long-term secular trends.  Spin dynamics in 2H19 make this one oversold in my opinion. 

[alexjonPSR]

They may need covenant relief. There are costs to be cut and I am sure they can work through it but I believe that + perceived weakness in dental orders with dentists offices closing is driving recent weakness.

[chrispy]

While a restaurant cannot make up for lost entree sales, NVST and ALGN will make up the majority of their sales, right?  People will still want straight teeth.

 

The current situation with dentists closed seems to me to be a catalyst which could dwindle down the competition and lead to quality future returns.  Does anyone have thoughts on who may benefit the most?  While I have read some about ALGN, I am not as familiar about Envista.  SmileDirectClub appears to be done.

 

Thanks!