Envista (NVST)

Dental products company Envista Holdings (NYSE:NVST) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 1.1% year on year to $616.9 million. Its non-GAAP profit of $0.24 per share was 17.1% above analysts’ consensus estimates.

Company Overview

Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE:NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.

The dental equipment and technology industry encompasses companies that manufacture orthodontic products, dental implants, imaging systems, and digital tools for dental professionals. These companies benefit from recurring revenue streams tied to consumables, ongoing maintenance, and growing demand for aesthetic and restorative dentistry. However, high R&D costs, significant capital investment requirements, and reliance on discretionary spending make them vulnerable to economic cycles. Over the next few years, tailwinds for the sector include innovation in digital workflows, such as 3D printing and AI-driven diagnostics, which enhance the efficiency and precision of dental care. However, headwinds include economic uncertainty, which could reduce patient spending on elective procedures, regulatory challenges, and potential pricing pressures from consolidated dental service organizations (DSOs).

Envista's competitors include Dentsply Sirona (NASDAQ:XRAY), Align Technology (NASDAQ:ALGN), Straumann Group (SWX:STMN), and Henry Schein (NASDAQ:HSIC), as well as privately-held companies like Planmeca and Carestream Dental.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $2.50 billion in revenue over the past 12 months, Envista has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Envista struggled to consistently increase demand as its $2.50 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Envista’s annualized revenue declines of 1.2% over the last two years align with its five-year trend, suggesting its demand has consistently shrunk.

This quarter, Envista’s revenue fell by 1.1% year on year to $616.9 million but beat Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Although Envista was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 2.3% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Envista’s operating margin decreased by 49.4 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 53.5 percentage points on a two-year basis. We’re disappointed in these results because it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q1, Envista generated an operating profit margin of 6.3%, down 1.4 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Envista, its EPS declined by 13.9% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

We can take a deeper look into Envista’s earnings to better understand the drivers of its performance. As we mentioned earlier, Envista’s operating margin declined by 49.4 percentage points over the last five years. Its share count also grew by 9%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Envista reported EPS at $0.24, down from $0.26 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Envista’s full-year EPS of $0.71 to grow 44.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Envista has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.4% over the last five years, better than the broader healthcare sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Envista’s margin dropped by 4.7 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Envista broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 5.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Envista’s five-year average ROIC was negative 4.5%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Envista’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Envista reported $1.08 billion of cash and $1.56 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $287.9 million of EBITDA over the last 12 months, we view Envista’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $24.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Envista beat analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also happy its full-year EPS guidance outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $16.34 immediately after reporting.

Updated: July 9, 2025 at 11:16 PM EDT

Are you wondering whether to buy Envista or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Envista doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last five years. And while its operating margins are in line with the overall healthcare sector, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Envista’s P/E ratio based on the next 12 months is 19.9x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $19.04 on the company (compared to the current share price of $20.38), implying they don’t see much short-term potential in Envista.