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Takeaway: XRAY likely to continue working on improving European trends and sentiment cycling higher.

Editor's note: Below is a brief excerpt from a report issued earlier this morning by Hedgeye Healthcare Sector Head Tom Tobin. For more information on how you can subscribe to Hedgeye research click here.


Conclusion: Q313 Inline, Staying Long

Q313 came in as we expected for DENTSPLY International Inc. (XRAY), although management threw up a few warning signs for Q413, but nothing that will generate a miss. Despite closing the relative performance gap since our initial position,and a rapidly expanding multiple, we'll stick with the long here.

Thesis:  Revision Cycle

Our original thesis on XRAY shares came from confidence in our outlook for the US Dental Market.  At the time, XRAY shares were under-performing, sellside sentiment was on a multi-year low, short interest was falling, and European trends appeared to be stabilizing. 

Our view was that as the European region recovered economically, so to should the internal growth rates for XRAY's EU business, driving a significant part of XRAY's revenue, and subsequently, sentiment higher.  Similar to the US, growth for XRAY overseas business is driven by the changes in employment and GDP related factors.  Unlike most names in HC, sellside ratings and short interest matter to XRAY's price performance.

>>> CLICK HERE to watch Hedgeye's #1 Q4 Macro Theme: #EuroBulls <<<