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Patterson Companies (PDCO) Moves Up 12.5%: What's Driving It?

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Shares of Patterson Companies, Inc. (PDCO - Free Report) have rallied 12.5% versus the industry's 2% rise since its third-quarter fiscal 2022 earnings were released on Mar 2.

The renowned distributor of dental and animal health products has a market capitalization of $3.38 billion. Its earnings for third-quarter fiscal 2022 surpassed the Zacks Consensus Estimate by 10%.

This Zacks Rank #2 (Buy) stock has a VGM Score of D. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.

The rally was largely driven by robust performance across the Animal Health segment. A strong position in the Dental market continued to favor the stock. The company’s wide range of products and services raises investor confidence.

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Image Source: Zacks Investment Research

Let’s take a quick look at the important catalysts to understand this positive trend.

Key Growth Drivers

Broad Product Spectrum: Patterson Companies offers a wide range of consumable supplies, equipment and software, and value-added services to customers. This diverse product range hedges the company from any meaningful sales shortfall during an economic downturn. The company’s private-label brands allow it to serve customers with brilliant products at reasonable prices and a more attractive margin profile. A notable offering from the company is a private-label brand named Pivotal.

The company’s NaVetor is an integrated cloud-based veterinary practice management software designed to streamline and simplify workflows for veterinary practices. This software demonstrates Patterson Companies’ commitment to providing innovative solutions to customers.

Solid Prospects in Animal Health Unit: Patterson Companies' growing Animal Health unit is a key long-term growth driver. Management at Patterson Companies expects solid margin improvement in the Animal Health unit through stronger partnerships with product manufacturers and strong sales execution. In the fiscal third quarter, the segment registered growth of 5.6% on the back of solid internal sales growth (more than 8%), double-digit growth in the Companion Animal business and sustained strength in the production animal business. The segment also benefited from the rise in pet adoptions and increased attention to pets.

Per the fiscal third-quarter earnings call, the Companion Animal business shows signs of prosperity and is poised to gain from the long-term tailwinds of higher pet ownership over the past two years.

Dental Market Holds Promise: Patterson Companies is expected to benefit from the gradual recovery in the dental market and the rebounding dental equipment business (especially in North America), aided by increased technology marketing/promotional activities. In the third quarter of fiscal 2022, sales at the Dental segment inched up 0.3% year over year.

Throughout the segment, the company’s field sales, service and support teams remain committed toward delivering value to customers and business partners, thereby driving solid operational excellence.

Favorable Growth Parameters

For 2022, Patterson Companies has an expected earnings growth rate of 10.84% compared with the industry’s projected 6.99% growth. Meanwhile, revenues are expected to grow 9.47% on a year-over-year basis over the same period.

Patterson Companies has a favorable current ratio of 1.58 versus the industry’s ratio of 1.93. The company’s return on equity (ROE) stands at 18.99% versus the industry’s ROE of 13.64%.

Patterson Companies’ payout ratio is currently at 54% of earnings.

Other Key Picks

A few better-ranked stocks in the broader medical space are Owens & Minor, Inc. (OMI - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Abiomed, Inc. (ABMD - Free Report) .

Owens & Minor has a long-term earnings growth rate of 8.8%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens & Minor has outperformed the industry over the past year. OMI has gained 14.9% against a 20.4% industry decline in the said period.

AMN Healthcare has an estimated long-term growth rate of 16.2%. AMN Healthcare’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 20%. It currently carries a Zacks Rank #1.

AMN Healthcare has outperformed the industry over the past year. AMN has gained 37.6% against the industry’s 57.2% fall over the past year.

Abiomed has an estimated long-term growth rate of 20%. Abiomed’s earnings surpassed estimates in the trailing four quarters, the average surprise being 9.2%. It currently carries a Zacks Rank #2.

Abiomed has underperformed the industry over the past year. ABMD has lost 8.5% compared with the industry’s 6.1% fall over the past year.