Here's Why You Should Sell Patterson Companies Stock Now
Patterson Companies, Inc PDCO underperformed the industry in a year’s time. The company’s shares have lost 52.4% versus the industry’s increase of 10.2%. The current return is also lower than S&P 500 index’s rise of 14.4%.
A rapidly changing healthcare environment in the United States, unfavorable price movements, declining dental revenues and integration risks pose significant challenges for Patterson Companies.
Further, management expects headwinds in the technology equipment business to persist through fiscal 2018 as Patterson Companies has been shifting to the new go-to market strategy with an expanded technology-based product portfolio. Currently, the company is also grappling with legal issues.
The Zacks Consensus Estimate for 2018 bottom line declined 2.4% in the last three months to $1.68. This shows a year-over-year decline of 28.2%. For the current quarter, the Zacks Consensus Estimate for the bottom line declined 9.7% in the last three months to 31 cents. This indicates a fall of 55.1% on a year-over-year basis.
Patterson Companies, Inc. Price and Consensus
Patterson Companies, Inc. Price and Consensus | Patterson Companies, Inc. Quote
The stock has a Zacks Rank #4 (Sell).
Here we take a peek at the major issues plaguing Patterson Companies.
The U.S. dental products distribution industry is highly competitive and majorly consists of national, regional and local full-service and mail-order distributors. Patterson Companies faces competition from another national, full-service firm, Henry Schein Dental — a unit of Henry Schein.
In addition, there are at least 15 full-service distributors that operate on a regional level and hundreds of small local distributors. It’s mandatory for the company to constantly introduce products in the market to tide over competitive pressures. Failure to do so will dilute the company’s market share.
Dwindling dental sales in the third quarter of fiscal 2018 reflected constant disruption of the company’s augmentation goals. Sales in this segment fell 8.1% from the prior-year quarter’s tally. Additionally, Patterson Companies’ sales of consumable dental supplies fell 7.4% on a year-over-year basis. Dental equipment sales also declined 10.6% on a constant-currency (cc) basis.
The recent loss of exclusive distribution rights with Dentsply Sirona has compelled the company to shift to a new enterprise resource planning (ERP) system to efficiently manage inventory. However, the system is creating short-term challenges.
Undoubtedly, the termination of the contract presents new opportunities for Patterson Companies to expand distribution platform to a wider range of product offerings. However, the company also witnesses a heavy initial impact from the loss of this deal.
Key Picks
A few better-ranked stocks in the broader medical space are Abiomed, Inc ABMD, Genomic Health Inc GHDX and Varian Medical Systems, Inc VAR.
Abiomed has a long-term earnings growth rate of 27%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Genomic Health has an expected earnings growth rate of 187.5% and a Zacks Rank #1.
Varian Medical has a projected long-term earnings growth rate of 8%. The stock carries a Zacks Rank #2.
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