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On Mar 15, we retained Patterson Companies Inc. (PDCO - Analyst Report) at Neutral, following its third-quarter fiscal 2013 results. Although results were in-line, the company needs to address its internal issues to avoid losing market share.

Why the Retention?

On Feb 21, Patterson posted third-quarter fiscal 2013 adjusted earnings of 52 cents per share, up 4% year-over-year. Earnings were in line with the Zacks Consensus Estimate. Revenues grew 2.3% to $915.9 million, marginally exceeding the Zacks Consensus Estimate of $915 million.

Following the release of the quarterly results, the Zacks Consensus Estimate for 2013 edged down 0.5% to $2.03 per share. However, the Zacks Consensus Estimate for 2014 remained unchanged at $2.26. With the Zacks Consensus Estimates for both 2013 and 2014 showing no clear directional pressure on the stock in the near term, the company now has a Zacks Rank #3 (Hold).

Patterson is benefiting from higher technology equipment sales in the Dental equipment business but is facing sluggish dental consumable sales. The Veterinary business is also experiencing an increase in demand in the U.S. but needs to address its internal issues to avoid losing market share. We are also upbeat regarding the company’s distribution agreement with Sirona. New products are expected to drive near-term growth.

Moreover, Patterson’s sustained investment in infrastructure should boost operational efficiencies to offset pressure on margins. However, health care reform related uncertainties continue to plague the company. We remain cautious about intense competition and an overall weak macro economy.

Other Stocks to Consider

While we see no clear directional pressure on Patterson, companies like Medical Action Industries , carrying a Zacks Rank #1 (Strong Buy), as well as Becton, Dickinson and Company (BDX - Analyst Report) and The Cooper Companies (COO - Analyst Report), which carry a Zacks Rank #2 (Buy), are expected to do well in the medical industry.

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