On Aug 23, Zacks Investment Research downgraded
) to a Zacks Rank #3 (Hold) from Zacks Rank #2 (Buy) on the heels
of a disappointing first-quarter fiscal 2014 results.
Why the Downgrade?
Patterson reported a disappointing fiscal 2014 first quarter
results, reflecting a challenging macro environment. The company
delivered negative earnings surprises in 3 out of the last 4
quarters with a negative average surprise of 6.03%.
Patterson's first-quarter fiscal 2014 earnings per share (EPS) of
45 cents per share was flat year over year and missed the Zacks
Consensus Estimate by 3 cents. The company's planned investment
in IT lowered EPS by a cent. In the reported quarter, net income
declined 3.4% to $45.9 million from $47.5 million in the year-ago
Moreover, revenues for the quarter dropped marginally by 1% to
$880.1 million from $889.2 million reported in the first quarter
of fiscal 2014. Revenues were considerably lower than the Zacks
Consensus Estimate of $918 million.
Revenues from the core Patterson Dental declined 2.3% mainly due
to an 11.7% drop in sales of the equipment and software
offerings. However, management asserts that the dental equipment
business faced difficult year-over-year comparisons and is
confident that the business will deliver incremental returns for
the rest of fiscal 2014 on the back of new products and rising
PDCO's margins too remained under pressure in the reported
quarter. Moreover, despite its long-term benefits, the decision
to divest certain non-core products from the Patterson Medical
unit is likely to accelerate operating expenses in the near-term.
Despite these shortcomings, we note that the Veterinary business
grew modestly in the quarter, reflecting a tailwind in the
underlying market. Moreover, the Medical business is geared to
grow in the long-term on the back of its advanced products
portfolio as well as underlying favorable demographics.
Other Stocks to Consider
Other medical stocks that are worth considering include
The Cooper Companies
). All these stocks carry a Zacks Rank #2 (Buy).
ALIGN TECH INC (ALGN): Free Stock Analysis
COOPER COS (COO): Free Stock Analysis Report
MWI VET SUPPLY (MWIV): Free Stock Analysis
PATTERSON COS (PDCO): Free Stock Analysis
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