Here's Why You Should Retain Patterson Companies (PDCO) Stock
Patterson Companies, Inc.’s PDCO broad product line is driving its prospects. The company recorded currency-adjusted revenue growth in third-quarter fiscal 2023, aided by a solid dental market. The trend is expected to continue. However, supplier concentration issues and stiff competitive forces persist.
In the past six months, this Zacks Rank #3 (Hold) stock has gained 6.1% compared with the industry’s 12.3% and the S&P 500’s 9.3% growth.
This renowned global dental and animal health company has a market capitalization of $2.67 billion. The company’s earnings are estimated to grow for the next five years, at an annual rate of 7.2%. Patterson Companies’ earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average earnings surprise of 6.22%.
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Let’s delve deeper.
Broad Product Spectrum: We are optimistic about PDCO’s wide range of consumable supplies, equipment and software, and value-added services. One of its notable offerings is a private-label brand named Pivotal (introduced during fiscal 2020). The company continues adding SKUs to its broad private-label portfolio. NaVetor, for instance, 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 expected to be advantageous for Patterson Companies. Per a report by marketsandmarkets.com, the dental equipment market was valued at $6.2 billion in 2021 and is projected to reach $8.9 billion by 2026, at a CAGR of approximately 7.7%.
Sales in this segment were down 4.4% year over year during third-quarter fiscal 2023. However, 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: PDCO’s growing Animal Health unit is a key long-term growth driver. Management expects solid margin improvement in this unit through strong sales execution and stronger partnerships with product manufacturers.
The company’s companion animal and production animal businesses are anticipated to maintain sustained growth. Management is optimistic that the Animal Health business is well poised to drive the top line and, thereby, margins in the near term. In the third quarter of fiscal 2023, the segment registered sales growth of 2.6%, owing to sustained strength in the production animal business. It also reported gross margin and operating margin improvement, 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.
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. Besides hundreds of small local distributors, Patterson Companies also faces competition from other national and full-service firms and at least 15 full-service distributors that operate on a regional level. The company needs to introduce products to withstand competitive pressure. Failure to do so can dilute its market share.
Supplier Concentration Issues: PDCO 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.
Patterson Companies is witnessing a negative estimate revision trend for fiscal 2023. In the past 60 days, the Zacks Consensus Estimate for fiscal 2023 earnings has decreased from $2.29 to $2.28 per share.
Revenue estimates for fourth-quarter fiscal 2023 are $1.66 billion, indicating a 1.2% improvement from the year-ago quarter. Earnings estimates are 71 cents per share, implying a flat year-over-year growth.
Patterson Companies, Inc. Price
Patterson Companies, Inc. price | Patterson Companies, Inc. Quote
Some better-ranked stocks in the broader medical space are Becton, Dickinson and Company BDX, Henry Schein HSIC and The Cooper Companies COO.
Becton, Dickinson and Company, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth of 7.8%. BDX’s earnings surpassed estimates in all the trailing four quarters, the average beat being 6.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s shares have gained 3.1% compared with the industry’s 12.2% growth in the past six months.
Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth of 8.1%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, the average beat being 2.97%.
The company’s shares have gained 17.3% compared with the industry’s 12.2% growth in the past six months.
The Cooper Companies, carrying a Zacks Rank #2 at present, has an estimated long-term growth of 11%. The company’s earnings missed estimates in all the trailing four quarters, the average negative surprise being 1.82%.
Shares of COO have gained 28% compared with the industry’s 12.2% growth in the past six months.
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