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

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·3 min read
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Patterson Companies, Inc. PDCO is well-poised for growth backed by strength in dental segment and strong prospects in Animal Health. However, rising debt level remains a concern.

The stock has gained 3.5% compared with the industry’s growth of 29.3% in a year’s time. The S&P 500 Index has rallied 61.2% in the same time frame.

Patterson Companies — with a market capitalization of $2.89 billion — is one of the leading distributors of dental and animal health products. It anticipates earnings to improve 13.1% over the next five years. The company has a trailing four-quarter earnings surprise 25.3%, on average.

Zacks Investment Research
Zacks Investment Research

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Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Factor Hurting the Stock

High debt level continues to plague Patterson Companies and fourth-quarter fiscal 2021 was no exception. Both the long-term and short-term debt levels were higher than the company’s short-term cash level, indicating weak solvency.

Key Catalysts

Patterson Companies is expected to benefit from gradual recovery in the dental market and rebounding dental equipment business (especially in North America), assisted by increased technology marketing/promotional activities.

Per management, the company remains optimistic about serving a strong and stable dental end market.

In fourth-quarter fiscal 2021, the segment surged 50.4% year over year, driven by better-than-expected growth in consumables, equipment and software and value-added service categories. Uptick in internal sales included robust growth in consumables, and equipment and software.

Patterson Companies' growing Animal Health unit is a key long-term growth driver. In the fiscal fourth quarter of 2021, the segment registered growth of 10.1% on the back of strong internal sales and companion animal posting internal sales. The segment is likely to benefit from the recently closed buyout of Miller Vet as this transaction is expected to expand the company’s core sales reach and drive synergies.

Although Patterson Companies witnessed growth in pet ownership and adoption amid the pandemic, the momentum might not continue at the current rate and will stabilize eventually. Nonetheless, the company anticipates that the overall companion animal market to grow at a faster rate than before the pandemic.

Patterson Companies is well positioned to leverage the incremental growth opportunity in this space on the back of comprehensive sales and support infrastructure, and the value it brings to its veterinary consumers daily.

Estimates Trend

For fiscal 2022, the Zacks Consensus Estimate for Patterson Companies’ adjusted earnings per share stands at $2.01, suggesting an improvement of 5.2% from the prior-year reported figure.

The consensus mark for fiscal 2022 revenues is pegged at $6.21 billion, suggesting growth of 5.1% from the year-ago reported number.

Stocks to Consider

Some better-ranked stocks from the broader medical space are Henry Schein, Inc. HSIC, Envista Holdings Corporation NVST and Merit Medical Systems, Inc. MMSI, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Henry Schein’s long-term earnings growth rate is estimated at 13.9%.

Envista Holdings’ long-term earnings growth rate is estimated at 27.4%.

Merit Medical’s long-term earnings growth rate is projected at 13.6%.

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Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report

Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report

Envista Holdings Corporation (NVST) : Free Stock Analysis Report

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