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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 strength in dental segment and strong prospects in Animal Health. However, rising operating expenses remain a concern.

Shares of this Zacks Rank #3 (Hold) company gained 19% compared with the industry’s rally of 19.3% in the past year. The S&P 500 Index has risen 32.3% in the same time frame.

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 9.6% over the next five years. The company has a trailing four-quarter earnings surprise 16.1%, on average.

Key Catalysts

Patterson Companies is expected to benefit from gradual recovery in the dental market and rebounding dental equipment business (especially in North America), supported by increased technology marketing/promotional activities.

Per management, the company remains optimistic about serving a strong and stable dental end market.

In first-quarter fiscal 2022, the segment surged 41% year over year, driven by better-than-expected growth in consumables, equipment and software and value-added service categories. Uptick in internal sales included robust growth in consumables, and equipment and software.

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Patterson Companies' growing Animal Health unit is a key long-term growth driver. In the fiscal first quarter of 2022, the segment registered growth of 23.5% on the back of solid internal sales growth and increase in internal sales in Companion Animal business.

The segment gained from rise in pet adoptions and increased attention to pets. Per the first-quarter fiscal 2022 earnings call, the Companion Animal market continues to flourish and is poised to gain from the long-term tailwinds of higher pet ownership and pet expenditure, and the faster-than-expected production animal market recovery.

Patterson Companies is well-positioned 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.

Factor Hurting the Stock

Rise in operating expenses remains a headwind for Patterson Companies. Persistent increase in expenses can weigh on the company’s margins.

Estimates Trend

Patterson Companies has been witnessing an upward estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 1% to $2.03.

The Zacks Consensus Estimate for fiscal second-quarter 2022 revenues is pegged at $1.58 billion, suggesting growth of 1.9% from the year-ago reported number.

Stocks to Consider

Some better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. (TMO - Free Report) , McKesson Corporation (MCK - Free Report) and AngioDynamics, Inc. (ANGO - Free Report) .

Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).

McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #2.

McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.

AngioDynamics surpassed earnings estimates in three of the trailing four quarters and missed once, the average surprise being 125.6%. The company currently carries a Zacks Rank #2.

AngioDynamics’ consensus mark for revenues for fiscal 2022 stands at $313.3 million, suggesting an improvement of 7.7% from the prior-year reported figure. The company’s earnings yield of 0.1% compares favorably with the industry’s (3.6%).