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

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Patterson Companies, Inc. (PDCO - Free Report) is well-poised for growth backed by robust product portfolio and strong prospects in Animal Health. However, rising debt level remains a concern.

The stock has gained 84% compared with the industry’s growth of 58.3% in a year’s time. Also, the S&P 500 Index has rallied 61.2% in the same timeframe.

Patterson Companies — with a market capitalization of $3.02 billion — is one of the leading distributors of dental and animal health products. It anticipates earnings to improve 11.8% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise 70.6%, on average.



Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Factor Hurting the Stock

High debt level continues to plague Patterson Companies and the third-quarter fiscal 2021 was no exception. Both the long-term and short-term debt levels were higher than the company’s short-term cash level, indicating weak solvency.

Key Catalysts

Patterson Companies provide a wide range of consumable supplies, equipment and software, and value-added services to its customers. The company’s wide range of products hedges it from any meaningful sales shortfall during an economic downturn.

During the fiscal first quarter of 2020, the company introduced a new private label brand named Pivotal, while continuing to add SKUs to its broader private label portfolio. Patterson Companies stands to gain from private label brands as they enable the company to offer customers with brilliant products at a reasonable price and more attractive margin profile.

Patterson Companies' growing Animal Health unit is a key long-term growth driver. In the fiscal third quarter of 2021, the segment sales rose 9.4% on a year-over-year basis to $894.3 million. According to the company, this can be attributed to solid internal sales growth of about 21% in its Companion Animal business.

Although the company witnessed growth in pet ownership and adoption during the pandemic, the momentum might not continue at the current rate and will stabilize eventually. Nonetheless, the company anticipates that the overall companion animal market will grow at a faster rate than before the pandemic.

Patterson Companies is in a good position to leverage the incremental growth opportunity in this space on the back of comprehensive sales and support infrastructure and the value it brings to its veterinary consumers daily.

Estimates Trend

For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $5.87 billion, indicating growth of 6.8% from the year-ago period. The same for adjusted earnings per share stands at $2.04, suggesting an improvement of 31.6% from the prior-year reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space are Hologic, Inc. (HOLX - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Abbott Laboratories (ABT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic’s long-term earnings growth rate is estimated at 15.4%.

IDEXX’s long-term earnings growth rate is projected at 15.8%.

Abbott’s long-term earnings growth rate is estimated at 14.1%.

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