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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 on the back of robust product portfolio and strong prospects in Animal Health. However, rising debt level remains a concern.

The stock has gained 67.1% compared with the industry’s growth of 30.2% in a year’s time. Also, the S&P 500 Index has rallied 40.4% in the same timeframe.

Patterson Companies — with a market capitalization of $3.23 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 provides 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 first-quarter fiscal 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 third-quarter fiscal 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 amid the pandemic, the momentum might not continue at the current rate and will stabilize eventually. Nonetheless, the company anticipates the overall companion animal market to grow at a faster rate than the pre-pandemic level.

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 $5.88 billion, indicating growth of 7.1% from the year-ago period. The same for adjusted earnings per share stands at $2.06, suggesting an improvement of 32.9% from the prior-year reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space are HCA Healthcare, Inc. (HCA - Free Report) , DaVita Inc. (DVA - Free Report) and Amedisys, Inc. (AMED - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HCA Healthcare’s long-term earnings growth rate is expected at 12.3%.

DaVita’s long-term earnings growth rate is estimated at 14.4%.

Amedisys’ long-term earnings growth rate is estimated at 12%.

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