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Patterson Companies Hurt by Competition & Integration Risks

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On Jan 3, we issued an updated research report on St. Paul, MN-based Patterson Companies Inc. (PDCO - Free Report) , a leading distributor and seller of dental and animal health products. Unfavorable market sentiments, integration risks and disappointing estimate revision trends indicate looming concerns for the stock. On that note, Patterson Companies currently carries a Zacks Rank #4 (Sell).

Over the past one year, the stock lost 7.11%, comparing unfavorably with the S&P 500’s gain of 8.9% over the same timeframe. A glimpse at the price performance of the stock reveals a negative return of 15.1% for the past six months, wider than the Zacks classified Medical/Dental Supplies sub-industry’s decline of 6.5%.

Meanwhile, the U.S. dental products distribution industry is highly competitive, which poses a major threat to Patterson Companies. Notably, the U.S. dental products distribution industry consists of national, regional and local full-service bigwigs like Henry Schein Dental, a national, full-service firm and a unit of Henry Schein.

Meanwhile, the estimate revision trend for the current year remains dismal for the stock as eight estimates moved south in the last two months, compared to no movement in the opposite direction. Notably, the Zacks Consensus Estimate for the current year has plunged by 34 cents to $2.30.

Patterson Companies is on an acquisition spree which is improving its revenue opportunities on one hand and aggravating integration risks on the other. The company recently announced an extended partnership with American Dental Partners or ADPI. Notably, Patterson Companies has been partnering ADPI for the past 20 years.

Nevertheless, Patterson Companies has compelling fundamentals in terms of revenues, multiplying at a CAGR of 27.3% over the last three years. Additionally, a long-term earnings growth rate of 7.48% instills confidence on the stock.

Key Picks

Better-ranked stocks in the broader medical sector include Addus HomeCare Corporation (ADUS - Free Report) , Cogentix Medical, Inc. (CGNT - Free Report) and Penumbra Inc. (PEN - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Addus HomeCare has a long-term expected earnings growth rate of approximately 15%. Notably, the stock represents an impressive one-year return of 53.1%.

Cogentix Medical has posted a positive earnings surprise of 100% in the last reported quarter. Additionally, the company has a promising one-year return of almost 74.2%.

Penumbra has a long-term expected earnings growth rate of approximately 20%. Notably, the stock represents an impressive one-year return of 16.4%.

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