U.S. Markets closed

Patterson Companies Down to Strong Sell

Zacks Equity Research

On May 28, 2014, Zacks Investment Research downgraded Patterson Companies, Inc. (PDCO) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On May 22, Patterson Companies reported disappointing fiscal 2014 fourth-quarter (ended Apr 26, 2014) results with both earnings and revenues coming in below expectations. Following the earnings release, shares of Patterson Companies fell 4.7% till the last closing date.

Owing to the lackluster results, Patterson Companies has also been witnessing a negative trend in earnings estimate revision. For fiscal 2015, nine estimates moved south in the last 7 days, with no upward revision over the same time frame, causing the Zacks Consensus Estimate to drop 4.6% to $2.27 per share. For fiscal 2016, three estimates were down in the past 7 days, leading to a 6.8% fall in Zacks Consensus Estimate to $2.46.

Moreover, Patterson Companies clocked negative earnings surprises in 2 of the last 4 quarters, with an average miss of 6.9%.

In the fiscal 2014 fourth-quarter, adjusted earnings per share of 60 cents went down from the year-ago quarter by a couple of cents and missed the Zacks Consensus Estimate by 6 cents. Revenues in the quarter grew 14.2% to $1,102.1 million but fell short of the Zacks Consensus Estimate of $1,123 million.

Revenues from the Patterson Dental deteriorated while revenues from Patterson Medical were flat year-over-year. However, revenues from Patterson Veterinary surged nearly 77% year over year. Though Patterson Medical’s acquisition of NVS in the U.K. significantly expanded the veterinary business, it negatively affected the segment margins.

Margins during the quarter were weak, with adjusted gross margin and adjusted operating margin recording a fall of 130 basis points (bps) to 32.3% and 70 bps to 10.1%, respectively.

Inclement weather, tough macroeconomic environment and unfavorable currency fluctuations are attributable for the unsatisfactory earnings and margins during the quarter.

Patterson Companies enters fiscal 2015 with a conservative view of the markets due to the relatively mixed performances in global economies. The company expects adjusted earnings per share in the band of $2.20−$2.30. The current Zacks Consensus Estimate of $2.27 lies within the guidance range.

Other Stocks to Consider

Some better-ranked stocks in the medical/dental supply industry are The Cooper Companies Inc. (COO), Milestone Scientific Inc. (MLSS) and Steris Corp. (STE). All these stocks retain a Zacks Rank #2 (Buy).

Read the Full Research Report on PDCO
Read the Full Research Report on COO
Read the Full Research Report on STE
Read the Full Research Report on MLSS

Zacks Investment Research