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

Zacks Equity Research

Patterson Companies, Inc. PDCO has been gaining investor confidence on continued impressive performance. In a month’s time, the stock has gained 2.2% against the industry’s 0.9% decline.

A growing diversified product portfolio, solid Dental business prospects, accretive acquisitions and strategic partnerships are key growth drivers for Patterson Companies. However, it slashed guidance for fiscal 2019 indicates looming concerns ahead.

Here we take a quick look at the primary factors that have been plaguing Patterson Companies and discuss the prospects that ensure near-term recovery.

Deterrents

Patterson Companies has trimmed its fiscal 2019 guidance for earnings. Notably, the company expects earnings in the range of $1.40-$1.45 per share compared with $1.40-$1.50 anticipated earlier.

This apart, the company faces cutthroat competition from the U.S. dental products distribution industry.

Further, Patterson Companies looks a bit expensive at the moment. A comparative analysis of the company’s forward P/S (TTM basis) ratio reflects a relatively gloomy picture. The stock currently trades at a P/S ratio of 0.38, a bit higher than 0.29x for the industry.

Factors that Bode Well

Patterson Companies is expected to take advantage from the gradual recovery in the dental market and the rebounding dental equipment business (especially in North America), assisted by increased technology marketing/promotional activities. A research report by the Grand View Research suggests that the global dental equipment market is projected to witness a CAGR of 4.9% by 2020.

Additionally, this Zacks Rank #3 (Hold) company has taken some robust initiatives like dental sales force realignment, integration with animal health and the implementation of the company’s enterprise resource planning system. With the acquisition of Fitzpatrick Dental Design, Patterson Companies aims to strengthen its equipment designs and expand its capabilities thereafter.

In fact, it is encouraging to note that Patterson Companies’ dental sales in the fiscal third quarter of fiscal 2019 inched up 0.3% year over year to approximately $579.7 million. The uptick can be attributed to double-digit growth in the CAD/CAM categories. Although Dental Consumables saw a year-over-year decline in revenues, it was partially offset by the Dental Equipment & Software and Other sub units’ solid performance.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for fiscal 2019 earnings is pegged at $1.43, reflecting a 14.9% decline year over year. The same for revenues stands at $5.57 billion, mirroring a 1.9% improvement year over year.

Patterson Companies, Inc. Price and Consensus

 

Patterson Companies, Inc. Price and Consensus | Patterson Companies, Inc. Quote

Bottom Line

Despite the temporary sluggishness, Patterson Companies seems to be well-positioned for growth backed by strong prospects in the Dental segment.

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A few better-ranked stocks from the MedTech space are ABIOMED, Inc. ABMD, IDEXX Laboratories, Inc. IDXX and Wright Medical Group N.V. WMGI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABIOMED’s long-term expected earnings growth rate is projected at 27.7%.

IDEXX Laboratories delivered a positive earnings surprise in each of the trailing four quarters, the average being 7.2%.

Wright Medical Group has a long-term earnings growth rate of 11.3%.

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