We recently initiated coverage on DENTSPLY International Inc. (XRAY) with a Neutral recommendation. We rate the stock Neutral with a target price of $37 based on a P/E of 18.3x our 2010 EPS estimate of $2.02.

DENTSPLY reported third quarter fiscal 2009 earnings per share of 44 cents, in line with the Zacks Consensus Estimate but slightly lower than the year-ago figure of 46 cents. The company’s sales were roughly flat year over year at $531.0 million. Excluding the precious metal content, net sales increased 1.1% year over year.

Excluding the precious metal content, gross margin in the third quarter declined 210 basis points (bps) year over year to 55.3%. However, the company’s cost-control initiatives helped it increase the operating margin 220 bps year over year to 18.8%.

DENTSPLY expects earnings per share for full fiscal 2009 between $1.81 and $1.86. We might reconsider our Neutral recommendation based on the company’s performance in the next quarter.

The company has an aggressive acquisition strategy. DENTSPLY acquired several businesses in the past few years. Some prominent acquisitions include Dental Depot Lomberg B.V., E.S. Holding N.V., Sultan Healthcare, Inc., NEKS Technologies, Inc., assets of Apollonia & Fama Implant S.r.l, etc.

DENTSPLY is a global leader in the design, development, manufacture and marketing of dental consumables, dental laboratory products and dental specialty products. The company’s products are available in over 120 countries under some of the most well established brand names in the industry. DENTSPLY’s diversified product portfolio hedges it from any significant sales shortfall in economic downturns.

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