On Friday, Morgan Stanley (NYSE:MS) adjusted its stance on Envista Holdings Corp . (NYSE:NVST), downgrading the stock from Overweight to Equalweight and reducing the price target significantly to $21 from the previous $33. The decision comes as Envista's shares experienced a notable decline, dropping 44% from their high in July, in contrast to the S&P 500's 9% increase during the same period.
The downgrade reflects concerns about the dental market's performance and the potential for further downside risk. The analyst cited lower than anticipated practice visit volumes and a transitioning executive team as factors contributing to a cautious outlook. In response to these market conditions, Morgan Stanley has also revised its earnings per share (EPS) estimate for 2024 downward to $1.40 from $1.54, a figure that falls below the consensus estimate of $1.42.
The revised estimates also extend into 2025, with the firm's EPS forecast adjusted to $1.50 from $1.75, again below the consensus of $1.61. This outlook is based on expectations of a slow recovery in top-line growth and only a modest improvement in margins. The new price target of $21, which implies a modest 4% upside, reflects lowered estimates and notable multiple contraction, from 18.9 times to 14.0 times the 2025 estimated EPS.
The analyst underscored the impact of weak demand and continued market share loss on Envista's organic revenue growth, which is now anticipated to be a mere 0.5%, down from the previously expected 2.0%. Additionally, the firm anticipates an EBITDA margin decline of 250 basis points to 15.6% from 16.6%. The sum-of-the-parts (SOTP) analysis supports the new valuation and the revised rating.
Morgan Stanley concluded that the path forward for Envista Holdings is unclear, and the turnaround story for the company is likely to be neither quick nor easy, leading to the new Equal-weight rating. This reassessment by Morgan Stanley provides investors with a revised expectation of Envista's financial performance and market position.
InvestingPro Insights
As Morgan Stanley recalibrates its outlook on Envista Holdings Corp. (NYSE:NVST), investors may find additional context in the latest metrics and analyst projections. InvestingPro data reveals a market capitalization of $3.44 billion USD for Envista, with a Price to Earnings (P/E) Ratio currently standing at a negative 33.42, indicating that the company has been unprofitable over the last twelve months. However, with a forward P/E Ratio of 30.87, analysts are forecasting a return to profitability for the upcoming fiscal period.
Envista's current financial health shows that its liquid assets surpass short-term obligations, an InvestingPro Tip that suggests a degree of resilience in managing its short-term liabilities. Additionally, the stock is trading near its 52-week low, which may indicate a potential entry point for investors considering long-term value. It is also noteworthy that the company does not pay a dividend, which could be a factor for income-focused investors.
For those seeking more in-depth analysis, there are additional InvestingPro Tips available on the platform. For instance, Envista is expected to see net income growth this year, which may align with Morgan Stanley's downward revision of EPS estimates if the growth is not as robust as anticipated. To access these insights and optimize investment strategies, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at Investing.com. There are 4 more InvestingPro Tips available for Envista, offering a comprehensive understanding of the company's financial trajectory and market position.
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