We reiterate our Neutral recommendation on
Patterson Companies, Inc.
(
PDCO
), a leading distributor of dental, veterinarian and rehabilitation
medical supplies.
The company's fourth quarter fiscal 2012 adjusted earnings per
share of 58 cents beat the Zacks Consensus Estimate by a penny.
Revenues for the fourth quarter rose 6% on the back of Veterinary
Supply business along with higher consumable sales, especially the
Trifexcis product. Patterson Medical sales also showed signs of
improvement in the reported quarter.
Patterson's Rehabilitation Supply business (also known as Patterson
Medical) is poised to be a key long-term growth driver for the
company. The April 2012 acquisition of Australia-based distributor
of rehabilitation, physiotherapy, and mobility products, Surgical
Synergies Pty Ltd. will help Patterson Medical establish a presence
in Australia and New Zealand.
Although patient demand for dental services was tepid at the height
of recession, Patterson should benefit from the gradual recovery in
the dental market and the rebounding dental equipment business in
North America. We also remain upbeat about the prospects of the
dental equipment business (especially CEREC). The company's focused
promotional activities should result in higher demand for this
product category moving ahead.
However, consumable sales from the dental business are expected to
be a drag due to the weak European economy, high unemployment rate
and lack of consumer confidence.
Moreover, the US healthcare reform is likely to adversely affect
the company's Medical business in fiscal 2013 as the recent Supreme
Court verdict to support the majority of Obamacare may affect
expenditures and reimbursements for its products. In its guidance,
the company does not foresee this segment to grow in fiscal 2013.
Additionally, a large percentage of Patterson's revenues depend on
its supply vendors. A loss of relationship with these vendors would
disrupt the supply of raw materials for Patterson's products. The
company expects a loss of $45 million in its Veterinary business
from a change in a distribution deal with a nutritional vendor,
from a buy/sell arrangement to an agency arrangement in fiscal
2013.
Patterson faces significant competition, especially in the U.S.
dental products distribution industry. The company competes
head-to-head with
Henry Schein Inc
(
HSIC
) in the dental market. Patterson needs to keep on introducing new
products in the market to withstand the competitive pressure.
Failure to do so will dilute the company's market share. Currently,
the stock carries a Zacks #2 Rank (short-term Buy rating).
HENRY SCHEIN IN (HSIC): Free Stock Analysis
Report
PATTERSON COS (PDCO): Free Stock Analysis
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