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

Patterson Companies, Inc. PDCO is well-poised for growth in the coming quarters, courtesy of its broad product line. The optimism led by a solid third-quarter fiscal 2023 performance and a few notable acquisitions are expected to contribute further. Supplier concentration issues and stiff competitive forces persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 14.6% against the 10% rise of the industry and the S&P 500’s 2.7% growth.

The renowned global dental and animal health company has a market capitalization of $2.59 billion. The company projects 7.2% growth for the next five years and expects to maintain its strong performance. Patterson Companies’ earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering a surprise of 6.2%, on average.

Zacks Investment Research
Zacks Investment Research


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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, while it continues adding stock keeping units to its broader private-label portfolio. Patterson Companies’ NaVetor is an integrated cloud-based veterinary practice management software for its Animal Health segment.

Acquisitions: We are upbeat about Patterson Companies’ strategy of expanding its business via strategic acquisitions. In January, it announced that it had, through subsidiaries, completed the previously-announced acquisition of substantially all the assets of Relief Services for Veterinary Practitioners and Animal Care Technologies.

In December 2022, Patterson Companies announced that it had, through a subsidiary, closed the previously announced acquisition of substantially all the assets of Dairy Tech, Inc.

Strong Q3 Results: Patterson Companies’ better-than-expected earnings in third-quarter fiscal 2023 results buoy optimism. Strength in the overall top line, Value-added Services and Other business of the Dental segment and the overall Animal Health segment was witnessed. The gross margin expansion bodes well for the company. Prudent cost-saving initiatives and solid sales execution continue to favor Patterson Companies.

Downsides

Stiff Competition: The U.S. dental products distribution industry is highly competitive and consists chiefly of national, regional and local full-service and mail-order distributors. Patterson Companies needs to continue to introduce newer products in the market to withstand competitive pressures. Failure to do so can dilute the company’s market share.

Supplier Concentration Issues: Patterson Companies has a 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.

Estimate Trend

Patterson Companies is witnessing a negative estimate revision trend for fiscal 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.4% south to $2.28.

The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2023 revenues is pegged at $1.66 billion, suggesting a 1.1% improvement from the year-ago quarter’s reported number.

This compares to our fiscal fourth-quarter revenue estimate of $1.65 billion, suggesting a 0.6% improvement from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are AmerisourceBergen Corporation ABC, Merit Medical Systems, Inc. MMSI and Cardinal Health, Inc. CAH.

AmerisourceBergen, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 8.9%. ABC’s earnings surpassed estimates in all the trailing four quarters, the average being 3.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AmerisourceBergen has gained 12.1% compared with the industry’s 10% rise in the past year.

Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

Merit Medical has gained 42.7% compared with the industry’s 10% rise over the past year.

Cardinal Health, carrying a Zacks Rank #2 at present, has a long-term estimated growth rate of 12.4%. CAH’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 12.3%.

Cardinal Health has gained 52.6% compared with the industry’s 10% rise over the past year.

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Cardinal Health, Inc. (CAH) : Free Stock Analysis Report

AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report

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

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

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Zacks Investment Research