Patterson Companies Inc. (PDCO), a leading distributor of dental, companion-pet veterinarian and rehabilitation medical supplies in the U.S. and Canada, is slated to report results for first-quarter fiscal 2011 (ending July 2010) on Thursday, August 26, 2010. The company has not divulged any financial forecast for the quarter.
 
The current Zacks Consensus Estimate for the first-quarter is 44 cents, representing an estimated 15.38% annualized growth. With respect to earnings surprise, Patterson has posted one positive surprise in the preceding four quarters while it met the Zacks Consensus Estimate on other occasions.
 
Fourth Quarter Flashback
 
Patterson reported fourth-quarter earnings per share of 52 cents, beating the Zacks Consensus Estimate of 50 cents and the year-ago earnings of 46 cents. The better-than-expected results were spurred by growth across all business segments.
 
Revenue leapt 4% year over year, with sales from Dental Supply and Rehabilitation Supply (‘Patterson Medical’) segments grew 3% and 18%, respectively. The company’s acquisitions of Mobilis Healthcare Group and Empi Therapy Solutions in 2009 have been the primary catalysts for revenue growth at Rehabilitation Supply segment. The company’s Dental Supply business showed signs of recovery in the quarter, helped by the resurgent dental market.
 
Estimate Revisions Trend
 
Agreement
 
Estimates for the forthcoming quarter have barely moved over the past week and month. Out of 13 analysts covering the stock, none have made any estimate revisions in either direction over the past week. Over the last 30 days, 1 out of 13 analysts has raised his/her forecast while none making negative revisions. Similar pattern applies to the estimates for fiscal 2011.
 
Magnitude
 
Given the lack of estimate revisions, the magnitude of revisions for the forthcoming quarter has plateaued over the last 7, 30 and 60 days. This implies that the analysts are expecting the company to report in line. For fiscal 2011, estimates have gone up by a penny over the past month. The current Zacks Consensus Estimate for fiscal 2011 is $1.95, reflecting an estimated year-over-year growth of 9.29%.   
 
Neutral on Patterson
 
Patterson’s wide product range hedges it from any meaningful sales shortfall amid economic volatility. It continues to invest in infrastructure to boost operational efficiencies. Moreover, the company’s Patterson Medical unit continues its acquisition binge to boost market position and geographic reach. 
 

We believe the company is well positioned to benefit from the recovery in the dental market and healthy growth at its Rehabilitation Supply business. However, we remain cautious about the company’s aggressive acquisition strategy (given the inherent integration risk) and its exposure to intense competition. This is reflected in our Neutral recommendation for the stock, which is supported by a Zacks #3 Rank (Hold).
 
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