Patterson Companies, Inc. (PDCO Quick QuotePDCO - Free Report) is well-poised for growth in the coming quarters, courtesy of its broad product line. The optimism led by a solid third-quarter fiscal 2023 performance and a few notable acquisitions are expected to contribute further. Integration risks and stiff competitive forces persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 4.2% against the 18% rise of the industry and the S&P 500’s 15.5% growth.

The renowned global dental and animal health company has a market capitalization of $2.65 billion. The company projects 7.2% growth for the next five years and expects to maintain its strong performance. Patterson Companies’ earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering a surprise of 6.2%, on average.

Image Source: Zacks Investment Research

Let’s delve deeper.

Broad Product Spectrum: We are optimistic about Patterson Companies’ wide range of consumable supplies, equipment and software, and value-added services. A notable offering from the company is a private-label brand named Pivotal, while it continues adding stock keeping units to its broader private-label portfolio. Patterson Companies’ NaVetor is an integrated cloud-based veterinary practice management software for its Animal Health segment.

Acquisitions: We are upbeat about Patterson Companies’ strategy of expanding its business via strategic acquisitions. In January, it announced that it had, through subsidiaries, completed the previously-announced acquisition of substantially all the assets of Relief Services for Veterinary Practitioners and Animal Care Technologies.

In December 2022, Patterson Companies announced that it had, through a subsidiary, closed the previously announced acquisition of substantially all the assets of Dairy Tech, Inc.

Strong Q3 Results: Patterson Companies’ better-than-expected earnings in third-quarter fiscal 2023 results buoy optimism. Strength in the overall top line, Value-added Services and Other business of the Dental segment and the overall Animal Health segment was witnessed. The gross margin expansion bodes well for the company. Prudent cost-saving initiatives and solid sales execution continue to favor Patterson Companies.

Downsides

Stiff Competition: The U.S. dental products distribution industry is highly competitive and consists chiefly of national, regional and local full-service and mail-order distributors. Patterson Companies needs to continue to introduce newer products in the market to withstand competitive pressures. Failure to do so can dilute the company’s market share.

Integration Risks: Patterson Companies has been on an acquisition spree which is improving its revenue opportunities, but is aggravating integration risks. Regular acquisitions are also a distraction for management which is likely to impact organic growth. This may limit Patterson Companies’ future expansion and worsen the company’s risk profile, going forward.

Estimate Trend

Patterson Companies is witnessing a flat estimate revision trend for fiscal 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings has remained stable at $2.28.

The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2023 revenues is pegged at $1.66 billion, suggesting a 1.1% improvement from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) , Merit Medical Systems, Inc. (MMSI Quick QuoteMMSI - Free Report) and Boston Scientific Corporation (BSX Quick QuoteBSX - Free Report) .

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 5.1% for fiscal 2024. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average being 27.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic has gained 16.5% compared with the industry’s 17.7% rise in the past year.

Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

Merit Medical has gained 54.7% compared with the industry’s 18% rise over the past year.

Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.5%. BSX’s earnings surpassed estimates in two of the trailing four quarters and missed in the other two, the average surprise being 1.9%.

Boston Scientific has gained 49.3% against the industry’s 20.4% decline over the past year.