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Patterson Companies Grapples with Multiple Issues: Dump Now?

On Jul 4, we issued an updated research report on St. Paul, MN–based The Patterson Companies PDCO, a leading distributor in the dental, companion-pet veterinarian and rehabilitation supply markets. The company currently carries a Zacks Rank #4 (Sell).

Patterson Companies’ unimpressive performance at the dental segment is a key concern. In fact, the 8.3% deterioration on a year-over-year basis in the last reported quarter dented overall results.

Coming to dental equipment, sales declined 17% in the last quarter, primarily due to lower sales of Sirona products and a tough comparison with regard to the year-ago quarter.

Patterson Companies’ stock looks a little expensive at the moment. A comparative analysis of the company’s forward P/E (TTM basis) multiple reflects a relatively gloomy picture that might be a concern for investors. The multiple currently stands at 20.14, a bit stretched when compared with its own range over the last one year (median of 18.32).

Cutthroat competition in the U.S. dental products distribution industry is a major dampener. Notably, Patterson Companies faces serious competition from at least 15 full-service distributors (that include Henry Schein Dental, a unit of Henry Schein) and hundreds of small and local distributors.

The company is also expected to face challenges from the disruption caused by its sales force realignment initiative. High operating expenses have been a major drag on margins.

Unfavorable Estimate Revision

Owing to the above-mentioned factors, the Zacks Consensus Estimate for full-year 2017 earnings dropped almost 3% to $2.33 per share, as seven out of eight analysts revised their estimates downward over the last 60 days.

For the current quarter, four analysts moved south compared to no movement in the opposite direction over the last two months. As a result, the Zacks Consensus Estimate for the current quarter fell 6.7% to 45 cents.

Dismal Share Price Trend

Patterson Companies has had a disappointing run on the bourse over the past three months. The company returned almost 6.3%, lower than the Zacks categorized Medical/Dental Supplies sub-industry’s gain of almost 10.5%. However, the current level is slightly higher than the S&P 500’s return of 4.0% over the same time period.

Stocks to Consider

Better-ranked stocks in the broader medical sector include Inogen Inc. INGN, Mesa Laboratories, Inc. MLAB and Edap Tms S.a. EDAP. Notably, all these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen has a long-term expected earnings growth rate of 17.50%. Notably, the stock represents an impressive one-year return of 100%.

Mesa Laboratories delivered a positive earnings surprise of 2.84% over the last four trailing quarters. Notably, the stock represents an impressive one-year return of 16.7%.

Edap Tms represents an impressive one-year return of 2.2% for the last three months. The company pulled off a solid earnings surprise of 533.3% in the last reported quarter.

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