Patterson Companies, Inc. (NASDAQ:PDCO) is expected to benefit from a diversified product portfolio and a strong veterinary business. However, declining dental revenues and integration risks pose significant challenges.
Shares Down
In a year’s time, shares of this Zacks Rank #3 (Hold) company have lost 42.8% compared with the industry’s 15.6% decline.
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 of the stock.
Weak Dental Unit
The Dental unit’s continued to perform disappointingly in second-quarter fiscal 2019. In the quarter, dental sales (39% of total sales) declined 2% year over year to approximately $542.5 million. Changes in sales force, disruptions in enterprise resource planning implementation and expansion of the company’s digital equipment portfolio hindered revenues at the segment.
Sales in the dental consumable totaled $303.8 million, down 2.4% year over year. Also, dental Equipment & Software sales fell 1.1% on a year-over-year basis to $167.7 million.
Management at Patterson Companies confirmed that it does not expect any radical improvement in its segmental performance any time soon.
Why Should You Retain the Stock?
Patterson Companies' growing Animal Health unit is a key long-term growth driver. Management at Patterson Companies expects solid margin improvement in the Animal Health Unit through stronger partnerships with product manufacturers and solid sales execution.
Furthermore, the company is focused on the enterprise-wide productivity and efficiency initiatives that are essential for optimizing the company’s operating model. Primarily on the back of increased growth in companion pet population, the veterinary market seems to provide ample growth opportunity for the company.
The acquisition of Animal Health International is an added positive. It is expected to double the size of Patterson Companies' existing veterinary business. The buyout will help the company gain a strong foothold in the animal health market, complementing its existing presence in the companion pet market.
Coming to the fiscal second-quarter performance of the platform (61% of total sales), sales increased almost 3.9% on a year-over-year basis to $855.4 million. Per management, the upside can be attributed to strong performance by the Companion Animal and Production Animal sub-units.
Which Way Are Estimates Headed?
For the third quarter of fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at 38 cents. The same for revenues is pinned at $1.40billion, showing an increase of 1.9% year over year.
For fiscal 2019, the Zacks Consensus Estimate for revenues is at $5.58 billion, reflecting a 2.1% increase year over year. The same for earnings stands at $1.43.
Patterson Companies, Inc. Price and Consensus
Key Picks
A few better-ranked stocks in the broader medical space are Veeva Systems Inc (NYSE:VEEV) , Integer Holdings Corporation (NYSE:ITGR) and OPKO Health, Inc (NASDAQ:OPK) .
Veeva Systems’ long-term earnings growth rate is projected at 19.5%. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Integer surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 9.7%. It currently carries a Zacks Rank #2 (Buy).
OPKO Health’s long-term earnings growth rate is projected at 12%. The company sports a Zacks Rank of 1.
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