Yahoo Finance Reasons to Retain Patterson Companies (PDCO) Stock Now
Patterson Companies, Inc.’s PDCO broad product line is driving its prospects. The company recorded currency-adjusted revenue growth in second-quarter fiscal 2023, aided by a solid dental market. While the trend is expected to continue, supplier concentration issues and stiff competitive forces are concerning.
In the past year, this Zacks Rank #3 (Hold) stock has declined 1.3% against the industry’s 2.5% growth. The S&P 500 declined 2.2% in the same time period.
This renowned global dental and animal health company has a market capitalization of $2.8 billion. The company’s earnings are estimated to grow for the next five years at an annual rate of 7.8%. Patterson Companies’ earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering a surprise of 7.88%, on average.
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Let’s delve deeper.
Broad Product Spectrum: We are optimistic about Patterson Companies’ wide range of consumable supplies, equipment and software, and value-added services. One of the company’s most notable offerings is a private-label brand named Pivotal (introduced during fiscal 2020). The company continues adding SKUs to its broad private-label portfolio. Patterson Companies’ NaVetor is an integrated cloud-based veterinary practice management software for its Animal Health segment.
Dental Market Holds Promise: Gradual recovery in the dental market and the rebounding dental equipment business (especially in North America), assisted by promotional activities, are likely to be advantageous for Patterson Companies. Sales in this segment were up 1.1% year over year during second-quarter fiscal 2023. The company’s field sales, service and support teams remain committed to delivering value to its customers and business partners, thereby driving solid operational excellence.
Solid Prospects of the Animal Health Unit: Patterson Companies' growing Animal Health unit is a key long-term growth driver. Management expects solid margin improvement in the Animal Health unit through stronger partnerships with product manufacturers and strong sales execution. The company’s Companion Animal and Production Animal businesses are anticipated to maintain sustained growth. The company is optimistic that the Animal Health business is well poised to drive the top line and, thereby, margins in the near term. In the second quarter of fiscal 2023, the segment registered internal sales growth of 0.7%, owing to sustained strength in the Production Animal business. The Animal Health segment delivered gross margin and operating margin improvement in the quarter under review, on the back of higher sales growth with vendor partners, improved product mix with solid product sales, private label products, equipment and software, and a team focused on expense discipline.
Downsides
Stiff Competition in the Niche Space: The U.S. dental products distribution industry is highly competitive and consists chiefly of national, regional and local full-service and mail-order distributors. Patterson Companies faces competition from other national and full-service firms, hundreds of small local distributors, and at least 15 full-service distributors that operate on a regional level. PDCO needs to introduce products for withstanding competitive pressure. Failure to do so can dilute the company’s market share.
Supplier Concentration Issues: Patterson Companies faces significant key supplier concentration. The company’s top 10 supply vendors account for more than 40% of its cost of dental products sold in a fiscal year. The loss of relationship with these vendors will disrupt the supply of raw materials, which, in turn, will lead to lower sales. A prolonged period of economic instability could reduce customers’ ability to make payments.
Estimate Trend
Patterson Companies is witnessing a positive estimate revision trend for fiscal 2023. In the past 90 days, the Zacks Consensus Estimate for its fiscal 2023 earnings has increased from $2.27 to $2.28 per share.
The Zacks Consensus Estimate for the company’s third-quarter fiscal 2023 revenues is pegged at $1.62 billion, indicating a 1.4% improvement from the year-ago period. The earnings estimate of 60 cents per share in the fiscal third-quarter implies a 9.1% improvement from the year-ago period.
Patterson Companies, Inc. Price
Patterson Companies, Inc. price | Patterson Companies, Inc. Quote
Key Picks
Some better-ranked stocks in the broader medical space include McKesson MCK, Cardinal Health, Inc. CAH and Merit Medical Systems, Inc. MMSI.
McKesson, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 10.4%. MCK’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed the same twice, the average beat being 3.42%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has lost 0.4% against the industry’s 2.4% growth in the past six months.
Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 6.43%.
Cardinal Health has gained 16% compared with the industry’s 2.4% growth over the past six months.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.35%.
Merit Medical has gained 19.5% compared with the industry’s 2.4% growth over the past six months.
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