Health Care Company is a Bargain

Envista Holdings (NVST), a manufacturer of a wide range of dental products, was spun out from industrial giant Danaher (DHR) last September. Since February, NVST’s share price have dropped by 50%, with dental activity in many parts of the country grinding to a halt due to the COVID-19 outbreak.

However, assuming that the dental business rebounds in the third quarter, the company should be profitable for the year, and any new financing that the company needs in the future should not dilute future earnings significantly. Danaher still owns 80.6% of the company and will serve as a backstop should any shutdowns last longer than most observers believe.

The company announced an aggressive cost-cutting program after the markets closed last night, so its management is taking tough steps to improve its results as soon as possible. Unlike the travel and leisure industries that are currently crippled by the coronavirus, dentistry is a form of health care that cannot be delayed indefinitely. This makes NVST a great way to play the eventual easing of the current health crisis.

Buy NVST under $15.50. My target of $24 is just 16X a conservative earnings per share (EPS) estimate of $1.50 in 2021. The company earned $1.79 a share last year.

If you are an Inner Circle subscriber who is following the model portfolio, buy a 5% allocation in NVST in the Value Sector.