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

Shares of this Zacks Rank #3 (Hold) company have fallen 3.8% compared with the industry’s decline of 4.7% on a quarter-to-date basis. The S&P 500 Index has decreased 5.8% in the same time frame.

Patterson Companies — with a market capitalization of $2.75 billion — is one of the leading distributors of dental and animal health products. It anticipates earnings to improve by 9.9% over the next five years. The company has a trailing four-quarter earnings surprise of 3.7%, on average.

Key Catalysts

Patterson Companies is expected to benefit from a 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 an increase in internal sales in the Companion Animal business and production animal business.

The segment gained from the 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. It 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

The rise in operating expenses remains a headwind for Patterson Companies. Persistent increases in expenses may weigh on the company’s margins as well.

Estimates Trend

For fiscal 2022, the Zacks Consensus Estimate for Patterson Companies’ earnings is currently pegged at $2.08, indicating an improvement of 8.9% from the previous year. The same for revenues is pegged at $6.52 billion, suggesting growth of 10.2% from the year-ago reported number.

Stocks to Consider

Some better-ranked stocks in the broader medical space include AMN Healthcare Services, Inc. (AMN - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .

AMN Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 19.5%. The company currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. The company’s earnings yield of 5.5% compares favorably with the industry’s 0.8%.

Henry Schein beat earnings estimates in each of the trailing four quarters, the average surprise being 21.9%. The company currently carries a Zacks Rank #2 (Buy).

Henry Schein’s long-term earnings growth rate is estimated at 11.8%. The company’s earnings yield of 5.9% compares favorably with the industry’s 4.1%.

West Pharmaceutical surpassed earnings estimates in each of the trailing four quarters, the average surprise being 29.4%. The company currently sports a Zacks Rank #2.

West Pharmaceutical’s long-term earnings growth rate is estimated at 27.6%. The company’s return on equity stands at 30.4% compared to the industry’s 14.4%.