Patterson Shares Downgraded To Sell At UBS

Analysts at UBS turned bearish on Patterson Companies, Inc. (NASDAQ: PDCO) as the company's exclusive relationship with Sirona will come to an end in September.

UBS's Michael Cherny downgrades Patterson's stock rating from Neutral to Sell with a price target slashed from $44.50 to $40 as the company's operations post-Sirona exclusivity creates too many concerns. The biggest concern is the fact that the company's agreement with Sirona contributed 14 percent to its EBIT and certainly creates a gap that will be "tough to fill" even with new product introductions — a view that is shared among others on the Street.

The loss of Sirona could also generate further market share losses in consumables sales, which are expected to remain in the low-single digit range, Cherny continued. As such, it is not clear at this point in time if the company will be able to accelerate recent EBIT growth, especially when factoring in expectations for further EBIT margin pressures from the Animal Health mix shift.

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Meanwhile, Patterson hasn't yet brought in a permanent CEO, and once an executive is appointed, they will need to immediately implement a sales force rebuild, the analyst added. Also, the ongoing ERP investment (Enterprise Resource Planning) and roll-out continues to be an overhang and needs to be managed properly to fully take advantage of any new opportunity.

While these issues are indeed fixable and the hiring of a new CEO could "pivot the company in a more sustainable direction," this will all take some time to realize. In the interim shares have further risk to the downside.

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Latest Ratings for PDCO

Jul 2017	UBS	Downgrades	Neutral	Sell
Jul 2017	Stifel Nicolaus	Downgrades	Hold	Sell
Apr 2017	Craig-Hallum	Initiates Coverage On		Hold

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