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Analyst Blog

On Sep 23, we issued an updated research report on St. Paul, MN-based The Patterson Companies (PDCO - Analyst Report) , a leading distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets. The company currently carries a Zacks Rank #4 (Sell).

Patterson Companies witnessed low dental consumable sales in the first quarter of 2017, down 7% year over year. In fact, a dismal performance by the Dental business segment (deteriorating 3.5% year over year) caused a major drag on overall results.

The cutthroat competitive scenario in the U.S. dental products distribution industry is also a major dampener. Notably, Patterson Companies faces serious competition from at least 15 full-service distributors (that include Henry Schein Dental, a unit of Henry Schein) and hundreds of small and local distributors. The company will also face challenges from the disruption caused by its sales force realignment initiative in the first quarter. High operating expenses have also been a major drag on margins.

Owing to the above-mentioned factors, the Zacks Consensus Estimate for full-year 2017 earnings dropped by a penny to $2.64 per share, as four out of the five analysts revised their estimates downward over the last 30 days.

However, on the brighter side, we are particularly upbeat about the growth prospects of the company’s Animal Health segment. The company also witnessed strong improvement in the swine end-markets and the beef cattle market.

In fact, strong growth in equipment sales in the dental platform is also a noteworthy development. The ‘go-to-market’ strategy, adopted in the last reported quarter (in the dental platform), is also likely to help the company fortify its market position.

In this regard, Patterson companies reported first-quarter fiscal 2017 adjusted earnings of 51 cents per share (up 8.5% year over year) from continuing operations. Net sales from continuing operations increased 16.6% (23.3% at constant exchange rate or CER) year over year to $1.33 billion.

Key Picks

Better-ranked stocks in the broader medical sector include Halyard Health Inc. (HYH - Snapshot Report) , Straumann Holding AG (SAUHF - Snapshot Report) and ABIOMED Inc. (ABMD - Analyst Report) .

Halyard currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. We note that the company posted a positive earnings surprise in the last four quarters, with an average of 25.8%. Meanwhile, a glimpse at the share price reveals an impressive one-year return of 15.8%, better than the S&P 500’s 12% over the same time frame.

Straumann, a global leader in implant and restorative dentistry and oral tissue regeneration, also carries a Zacks Rank #1. This stock has an impressive long-term expected earnings growth rate of 13%. Coming to share price movement, Straumann represents a solid one-year return of 34.1%.

ABIOMED carries a Zacks Rank #2 (Buy). Notably, ABIOMED posted positive earnings surprises for the last four quarters, the average being 34.9%. This stock has an impressive long-term expected earnings growth rate of 26.6%.

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