Patterson's Growth, Market Share At Risk In The Years Ahead

Patterson Companies, Inc. (NASDAQ: PDCO), a distributor of consumable dental products and other services, is expected to see pressure in the coming years to its growth profile and market share take, according to analysts at Stifel.

Stifel's Jonathan Block downgrades Patterson's stock rating from Hold to Sell with a newly established $39 price target, mostly due to expected pressure on its equipment results. Specifically, Henry Schein, Inc. (NASDAQ: HSIC) will begin distributing DENTSPLY SIRONA Inc (NASDAQ: XRAY)'s full line of dental equipment in North America as of Sept. 1.

Pro's Perspective

A survey was conducted among industry professionals who considered Henry Schein as their primary distributor and was asked if their respective practice is more likely to purchase high-tech equipment from Dentsply Sirona.

The analyst believes that if Patterson was previously selling approximately 1,000 CEREC units in North America then Henry Schein's increased presence in the space could help accelerate market adoption, but naturally at the expense of Patterson (see Block's track record here). As a result, 1,100 units could be sold, but only 800 to 900 comes from Patterson with the remaining 200 to 300 units from Henry Schein, the analyst noted. However, Patterson's bigger problem could be the impact to its consumable market share.

"Our prior work highlighted Patterson's dominant consumable market share within CEREC accounts, and today's work suggests share losses may take place among a subset of these accounts once Henry Schein starts supporting the Dentsply Sirona product line," the analyst explained.

In terms of numbers, Patterson's consumable share within CEREC practices could fall from 59.9 percent to 53.5 percent, Block added. Working under the assumption that CEREC accounts for half of Patterson's dental consumable revenue, it is possible the company's North American consumable share could drop by at least 200 basis points over the next two years.

At last check, shares of Patterson were down 6.41 percent at $44.39.

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