On Thursday, BofA Securities adjusted its outlook on Patterson Companies (NASDAQ:PDCO), reducing the price target to $29 from the previous $31, while continuing to recommend the stock as a Buy. The firm cited Patterson's first-quarter results, which fell short of expectations due to temporary factors.
Notably, the company faced a 2-3 percentage point impact in the quarter, attributed to ongoing repercussions from the Change cyber incident and a challenging comparison year-over-year due to inventory stockpiling in anticipation of a UPS strike.
The analysis indicated that a slowdown in the dental consumables market is evident by the low single-digit growth rate. However, Patterson is expected to outperform its competitor, Henry Schein (NASDAQ:HSIC), in the near term, despite Henry Schein also facing cybersecurity challenges. The Animal Health segment of Patterson is reportedly seeing top-line pressure from the strategic move away from lower-margin customers and decreased rebates.
Despite these challenges, BofA Securities anticipates that the headwinds in the Animal Health division should lessen as the year progresses.
Nonetheless, achieving the fiscal year 2025 earnings per share guidance will likely necessitate heightened cost control measures. The firm acknowledges increased execution risk for fiscal year 2025 but maintains that Patterson's ongoing market share gains in dental consumables could lead to better operating leverage compared to its peers when market volumes rebound.
The report concludes with a reaffirmation of the Buy rating, setting a price objective of $29 based on an 8.5 times calendar year 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple.
This forward-looking valuation marks a shift from the prior price objective, which was based on approximately 9.5 times the estimated EV/EBITDA for calendar year 2024. The revision in the multiple reflects a slightly reduced visibility into the company's cybersecurity recovery process.
In other recent news, Patterson Companies reported a decrease in first-quarter fiscal 2025 results, with consolidated sales dropping to $1.54 billion, marking a 2.2% decrease compared to the same period last year.
The company encountered challenges such as a cybersecurity attack on Change Healthcare (NASDAQ:CHNG), which impacted the Dental segment, and lower sales in the Companion Animal business. Despite these adversities, Patterson reaffirmed their fiscal 2025 earnings guidance, citing cost management actions and strategic investments as measures to bolster financial performance.
Simultaneously, Piper Sandler adjusted its outlook on Patterson Companies, reducing the price target to $26.00 from the previous $28.00, while retaining a Neutral rating on the stock. This revision follows Patterson's release of its first quarter results, which fell short of expectations. Patterson posted revenues of $1,542 million, marking a 2.8% organic decline, and earnings per share (EPS) at $0.24, as opposed to the projected $1,591 million in revenue and $0.33 EPS.
Despite the shortfall, the company's management has upheld its EPS guidance for the year at $2.33 to $2.43. This comes amid worsening business conditions in recent months and earnings impacted by the Change Healthcare cybersecurity incident. Piper Sandler expressed skepticism about the company's ability to meet even the lower end of the EPS guidance, anticipating an EPS closer to $2.30.
InvestingPro Insights
In light of BofA Securities' recent outlook adjustment on Patterson Companies (NASDAQ:PDCO), current data from InvestingPro provides additional context to investors. The company is trading at a price-to-earnings (P/E) ratio of 14.04, which is lower than the industry average, indicating that the stock may be undervalued. This is further supported by the company's adjusted P/E ratio for the last twelve months as of Q1 2025, which stands at 11.77.
Patterson Companies has been demonstrating a commitment to shareholder returns, as evidenced by management's aggressive share buybacks and the maintenance of dividend payments for 15 consecutive years, currently yielding 4.63%. The company's stock is also trading near its 52-week low, which could present a buying opportunity for value investors.
While the firm faces challenges, such as a recent downturn in stock price and analyst earnings revisions, two InvestingPro Tips suggest a silver lining: the company is expected to remain profitable this year and has been profitable over the last twelve months. Investors interested in Patterson's potential for recovery and long-term value may find additional insights, including 9 more InvestingPro Tips, at Investing.com's dedicated section for PDCO.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.