Patterson Cos. (PDCO) Down 33.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Patterson Cos. (PDCO). Shares have lost about 33.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Patterson Cos. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Patterson Companies Q3 Earnings Top Estimates, Up Y/Y

Patterson Companies, Inc. reported adjusted earnings per share of 47 cents in third-quarter fiscal 2020, which beat the Zacks Consensus Estimate by 27%. Moreover, the bottom line improved 23.7% from the prior-year quarter.
 
Net sales in the quarter were $1.46 billion, outpacing the Zacks Consensus Estimate by 2.8%. The top line also rose 4.3% year over year.

Segmental Analysis
 
The company currently distributes products through subsidiaries Patterson Dental and Patterson Animal Health.

Dental Segment

This segment provides a complete range of consumable dental products, equipment, software, turnkey digital solutions and value-added services to dentists, and laboratories throughout North America.
 
In the fiscal third quarter, dental sales improved 8.1% year over year to approximately $626.6 million.
 
Dental Consumable
 
Sales in the sub-segment totaled $300.4 million, up 1.9% year over year.
 
Dental Equipment & Software
 
Sales in the segment improved 16.2% on a year-over-year basis to $252.9 million.
 
Other
 
This segment comprises technical service, parts and labor, software support services and office supplies. Sales at the segment improved 8.8% on a year-over-year basis to $73.3 million.
 
Animal Health Segment

This segment is a leading distributor of veterinary supplies to clinics, public and private institutions and shelters across the United States.
In the fiscal third quarter, the segment sales improved 1.2% on a year-over-year basis to $817.3 million.
 
Corporate
 
Sales at the segment were $12.3 million, up 29% from $9.5 million reported in the year-ago quarter.
 
Gross Margin Analysis
 
Gross profit in the reported quarter was $311.8 million, up 4.1% year over year. As a percentage of revenues, gross margin of 21.4%, remaining flat on year-over-year basis.
 
Operating expenses in the reported quarter totaled $268 million, up 5.5% on a year-over-year basis.

Operating income was $43.8 million, down 3.4% from the year-ago quarter.

Fiscal 2020 Guidance Raised

For fiscal 2020, Patterson Companies now expects adjusted earnings per share in the range of $1.50 to $1.55 (up from the prior range of $1.36-$1.46). The mid-point of the guidance of $1.53 is above the Zacks Consensus Estimate of $1.42 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Patterson Cos. has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Patterson Cos. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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