It’s Time To Buy Patterson Companies (NASDAQ:PDCO) 3.25% Yield

 Patterson Companies Breaks Out After Earnings

Patterson Companies (NASDAQ:PDCO) is another of those odd businesses that make you wonder how they got started. Like Hillenbrand and Matthews International Corporation, it is an unusual mix of businesses but one that seems to be working. In the case of Patterson Companies that means Dental and Animal Health, two areas of the economy with steady tailwinds to drive them. The calendar 2nd and 3rd quarters of the year weren’t great for the company but the rebound is on. Not only is the company seeing increasing demand on a sequential basis but YOY growth is also back. Add to this a safe 3.25% yield and it’s no wonder the stock is breaking out to new highs.

Patterson Companies Blows The Estimates Away

As often as I’ve had to write the words “blows the estimates away” this quarter I am still not tired of it.  The difference here is that Patterson Companies not only beat the consensus but by such a large margin as to be truly amazing. That’s important because the average company is beating expectations and that has the market numb to what would otherwise be good news.

The consolidated revenue came in at $1.55 billion. That’s 25% of the prior quarter, 9.2% above the same quarter last year, and 9.2% above the consensus. Strength was driven by a 11.9% increase in Dental coupled with a 7.8% increase in Animal Health. Margins were expanded130 bps to 5.3% due to leveraging sales, product mix, and expense discipline driving a substantial increase in net income. Moving on to the bottom line, net income grew 263.4% YOY putting GAAP EPS at $0.56 or $0.26 ahead of the consensus. On an adjusted basis, EPS of $0.63 beat by $0.25.

Patterson Companies Pays A Safe 3.25%

Patterson Companies is a steady dividend payer if nothing else. The company has a history of dividend increases with no cuts but there hasn’t been one in several years. That said, the company is paying about 65% of earnings with a relatively sound balance sheet. Total debt is low, leverage is low, and coverage is good.  The company has been burning through cash the first half of the year but there is a mitigating factor. Management is spending on restructuring and growth initiatives that are expected to drive revenue and earnings in future quarters.

“Patterson’s strong revenue growth and adjusted earnings in the second quarter reflect the resilience of our customers and the focus and dedication of our team as we continue to successfully execute our strategy,” said Mark Walchirk, President and CEO of Patterson Companies. “Despite the disruption of the COVID-19 pandemic, focused investments in our people, technology and services have enabled us to deepen our partnerships with our customers and continue the sales momentum we are building across our Dental and Animal Health businesses.

The Technical Outlook: A Break Out In-Play

Shares of Patterson Companies surged more than 13% following the F2Q report breaking out to a new 2.5 year high. The candle looks very strong and is supported by a strong buy signal in the indicators so further upside should be expected. In the near-term, shares may move up to the $36 level before encountering major resistance. The catalyst for this move will be the analysts. The analysts are, at best, neutral on this stock with a consensus target 25% below the current price target. Based on the 2Q earnings and outlook I would be very surprised if there wasn’t a series of upward revisions beginning as soon as the now timeframe.