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Here's Why You Should Buy Patterson Companies (PDCO) Stock

·5 min read

Patterson Companies, Inc.’s PDCO broad product line is driving its prospects. The company reported robust revenue growth for fourth-quarter fiscal 2022, aided by a solid dental market. The trend is expected to continue. However, supplier concentration issues and stiff competitive forces persist.

So far this year, this Zacks Rank #2 (Buy) stock has gained 5.3% against a 9.3% fall of the industry and the S&P 500’s 12.3% decline.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

This renowned global dental and animal health company has a market capitalization of $3.00 billion. The company’s earnings are estimated to continue their strong growth for the next five years at an annual rate of 9.6%. Patterson Companies’ earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering a surprise of 16.49%, on average.

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. A notable offering from the company is a private-label brand named Pivotal (introduced during the fiscal first quarter of 2020). The company continues adding SKUs to its broader private-label portfolio. Patterson Companies’ NaVetor is an integrated cloud-based veterinary practice management software for its Animal Health segment (launched in fiscal 2019).

Dental Market Holds Promise: Gradual recovery in the dental market and the rebounding dental equipment business (especially in North America), assisted by increased technology marketing/promotional activities, are expected to be advantageous for Patterson Companies, thus raising our optimism. Per management, in the fourth quarter of fiscal 2022, sales at this segment were up 3.3% year over year. Throughout the Dental segment, 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.

Strong Q4 Results: Patterson Companies’ better-than-expected earnings in fourth-quarter fiscal 2022 buoy optimism. The company saw solid performance in the Animal Health segment in the quarter under review. Apart from Dental Consumables, the Dental business showed improvement. Sustained momentum in the Animal Health business and the company’s solid position in the market were reflected in the fiscal fourth-quarter results. Prudent cost-saving initiatives and solid sales execution continue to work in favor of Patterson Companies.

Downsides

Stiff Competition in the Niche Space: The U.S. dental products distribution industry is highly competitive and consists principally of national, regional and local full-service and mail-order distributors. Patterson Companies faces competition not only from other national and full-service firms but also from at least 15 full-service distributors that operate on a regional level besides hundreds of small local distributors. Patterson Companies needs to continue to introduce products in the market to withstand competitive pressure. Failure to do so can dilute the company’s market share.

Supplier Concentration Issues: Patterson Companies has 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.

Patterson Companies, Inc. Price

Patterson Companies, Inc. Price
Patterson Companies, Inc. Price

Patterson Companies, Inc. price | Patterson Companies, Inc. Quote

Estimate Trend

Patterson Companies is witnessing a positive estimate revision trend for 2022. In the past 60 days, the Zacks Consensus Estimate for its earnings has moved 2.2% north to $2.29.

The Zacks Consensus Estimate for the company’s first-quarter fiscal 2023 revenues is pegged at $1.56 billion, suggesting a 3.3% decline from the year-ago quarter’s reported number.

Other Key Picks

A few other top-ranked stocks in the broader medical space that investors can consider are ShockWave Medical SWAV, AmerisourceBergen ABC and Alkermes ALKS. While ShockWave Medical sports a Zacks Rank #1 (Strong Buy), AmerisourceBergen and Alkermes carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

ShockWave Medical’s earnings per share estimates have improved from $1.84 to $2.57 for 2022 and from $2.82 to $3.42 for 2023 in the past 60 days. SWAV has gained 57.7% so far this year.

ShockWave Medical delivered an earnings surprise of 180.14%, on average, in the last four quarters.

Estimates for AmerisourceBergen have improved from earnings of $10.94 to $10.97 for 2022 and $11.45 to $11.52 for 2023 in the past 60 days. ABC stock has risen 11.5% so far this year.

AmerisourceBergen delivered an earnings surprise of 2.63%, on average, in the last four quarters.

Alkermes’ earnings per share estimates have improved from a loss of 17 cents to earnings of 20 cents for 2022 and from 31 cents to 50 cents for 2023 in the past 60 days. ALKS has gained 9.5% so far this year.

Alkermes delivered an earnings surprise of 325.48%, on average, in the last four quarters.


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