Patterson Dental is a complete provider of dental equipment, supplies and software in North America. Although the company is mainly focused in the field of dentistry (65% of sales), it also has (had) small Veterinary (20%) and Medical (15%) divisions. Well that just changed. Patterson Dental is now Patterson Companies (PDCO) as it sold off its medical unit for $715 million and bought Animal Health International for $1.1 billion. Now the company can focus on animal care, which is growing faster than the economy. PDCO could give total returns of 13% a year and for 18x earnings its a good choice for the Conservative Stock Portfolio.
Ten Year Chart
Right now PDCO is a 11% grower with a P/E of 18. It also yields 2%, for a total annual return of maybe 13% a year.
Profit growth the last 4 qtrs has been 15%, -4%, 11% and most recently -6%. Estimates for the next 2 qtrs are 9% and 18%. This seems to be a good price for the stock, considering its quality and obviously recurring revenue streams).
During the last decade the profits have grown 6% a year almost all PDCO’s profit growth can be attributed to stock buybacks. The stock used to have a high P/E around a decade ago, that’s what kept me out of it.
Profit History
Last qtr this stock was selling for 20x earnings and I didn’t think there was much of any upside to that. Now at 18x earnings, the stock is attractive for conservative investors. The baby boomers are in retirement, people have money again, and spending on dental care is picking up.
Sharek’s Take
Patterson Dental is changing to Patterson Companies with its big push into the veterinary field. I’m sure the company will carve out a solid notch in serving the overall needs of vets and that will be a small catalyst for profit growth. At 18x earnings this might be the cheapest we will see this company at in a while, and I will add it to the Conservative Growth Portfolio, where it will rank 16th of 29 stocks.
View the Ten Year Chart here. View the Earnings Table here.
