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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 lost 2.6% against the industry’s growth of 14.9% on a year-to-date basis. The S&P 500 Index has rallied 26.9% in the same time frame.

Patterson Companies — with a market capitalization of $2.81 billion — is one of the leading distributors of dental and animal health products. It anticipates earnings to improve 9.9% over the next five years. The company has a trailing four-quarter earnings surprise 3.7%, 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.

Per management, in the second-quarter fiscal 2022, sales at this segment dipped 1.5% year over year but surpassed its own expectations for the quarter. The reported figure improved 10% compared with the pre-pandemic period (two years back). Throughout the Dental segment, the company’s field sales, service and support teams remain focused on delivering value to its customers and business partners, thereby driving solid operational excellence.

Zacks Investment ResearchImage Source: Zacks Investment Research

Patterson Companies' growing Animal Health unit is a key long-term growth driver. In the fiscal second quarter of 2022, the segment registered growth of 12.4%, courtesy of solid internal sales growth and increase in internal sales in Companion Animal business and production animal business.

The segment gained from rise in pet adoptions and increased attention to pets. Per the second-quarter fiscal 2022 earnings call, the Companion Animal market continues to show signs of prosperity 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 may weigh on the company’s margins as well.

Estimates Trend

Patterson Companies has been witnessing an upward estimate revision trend for fiscal 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 2.5% to $2.08.

The Zacks Consensus Estimate for fiscal third-quarter 2022 revenues is pegged at $1.63 billion, suggesting growth of 4.8% 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 NextGen Healthcare, Inc. (NXGN - 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%.

NextGen Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 16%. The company currently carries a Zacks Rank of 2.

NextGen Healthcare’s long-term earnings growth rate is estimated at 8.5%. The company’s earnings yield of 5.9% compares favorably with the industry’s (4.1%).

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