Recession-Proof Patterson Companies Is A Steal

Patterson Companies Rockets Higher On Results And Outlook 

Patterson Companies (NASDAQ: PDCO) has proven to be very resilient over the past few years both increasing its revenue and earnings power relative to the pre-pandemic period. The company is among the most perfectly positioned for the coming period as well, selling products, services, and technology to the dental and animal health care industries. In our view, both of these industries are not only resistant to recessionary fears but may even get a boost from an economic downturn as consumers refocus their spending dollars. That’s great news for this 3.35% yielding stock.

“While we anticipate the current macro environment will have a moderate impact on our end markets, our proven team, compelling value proposition and strong competitive position give us confidence as we enter fiscal 2023. Our fiscal 2023 guidance anticipates delivering year-over-year revenue growth and operating margin expansion,” says CEO Mark Walchirk. 

Patterson Companies Beats And Guides Strong, Market Cheers

Patterson Companies had a strong fiscal 4th quarter reporting $1.64 billion in sales. This is up 4.9% from last year, 5.1% organically, and beat the Marketbeat.com consensus by 315 basis points. The strength was driven by gains in both segments led by the Animal Health group. Animal Health sales grew by 7.6% which is above the industry outlook led in turn by sales of Equipment. Equipment sales grew by 22% and were offset by slower growth in the Consumables and a decline in Value-Added Services. The Dental Segment grew by 3.4% and was also led by Equipment sales. 

Moving on to the earnings, the news gets even better. The company posted robust margin expansion in both segments driven by cost control efforts, pricing actions, and sales leverage. The company reports GAAP net income is up 122% versus last year while the adjusted income is up 87% YOY and left the EPS well above consensus. The adjusted EPS of $0.71 beat by $0.15 and the company is expecting to see earnings strength continue in the current fiscal year. 

Turning to the guidance, the company did not give a number for revenue but it is expecting to see margins expand and earnings grow. The $2.25 to $2.35 in expected adjusted EPS is flat to slightly higher from fiscal 2022 but there was an extra week in 2022 that added $0.04 to the bottom line. Adjusting for that, the EPS guidance is not only favorable versus F2022 but it is also above the consensus target of $2.24. 

Sell-Siders Quietly Scooping Up Shares Of Patterson Companies 

The analysts' activity in Patterson Companies is a bit tepid in that only 2 analysts have current ratings. The takeaway is that both ratings came out this year, they rate the stock a firm Hold, and the price target implies a double-digit upside even with the post-release surge in share prices. The institutions, however, are more bullish on the stock having picked up roughly 9% of the pre-release market cap over the past 4 quarters. This activity has institutional ownership up to 90% and growing. 

Turning to the chart, Patterson Companies hit a bottom prior to the Q4 release and it is now confirming strong support at that level. This level, near $27.50, is the bottom of a range as well and one supported by the institutions. Assuming the market follows through on this move, we see Patterson Companies stock moving up to the high end of the range near $35.50, which is consistent with the consensus estimate, and possibly moving higher.