Patterson Companies Inc Valuation – April 2017 $PDCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Patterson Companies Inc (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. is a distributor serving the dental, veterinary and rehabilitation supply markets. The Company operates through three segments: dental supply, veterinary supply and rehabilitation supply. The dental supply segment provides a range of consumable dental products, clinical and laboratory equipment, and value-added services to dentists, dental laboratories, institutions and other dental healthcare providers across North America. The veterinary supply segment is a distributor of veterinary supplies, primarily to companion-pet (dogs, cats and other common household pets) and equine veterinary clinics. The rehabilitation supply segment provides a range of distributed and self-manufactured rehabilitation medical supplies and assistive products to acute care hospitals, long-term care facilities, rehabilitation clinics, dealers and schools. The Company’s operating units include Patterson Dental, Patterson Veterinary and Patterson Medical.

PDCO Chart

PDCO data by YCharts

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ModernGraham Valuation of PDCO – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,306,984,884 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.89 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 14.92% Fail
6. Moderate PEmg Ratio PEmg < 20 22.84 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.06 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.89 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.95
MG Growth Estimate 0.25%
MG Value $17.54
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $28.26
MG Value based on 0% Growth $16.56
Market Implied Growth Rate 7.17%
Current Price $44.51
% of Intrinsic Value 253.77%

Patterson Companies, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.92 in 2013 to an estimated $1.95 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Patterson Companies, Inc. revealed the company was trading above its Graham Number of $23.91. The company pays a dividend of $0.96 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.84, which was below the industry average of 37.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.53.

Patterson Companies, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.53
Graham Number $23.91
PEmg 22.84
Current Ratio 1.89
PB Ratio 3.06
Current Dividend $0.96
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 8

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2017
Total Current Assets $1,871,216,000
Total Current Liabilities $988,453,000
Long-Term Debt $1,001,775,000
Total Assets $3,594,062,000
Intangible Assets $1,247,480,000
Total Liabilities $2,207,987,000
Shares Outstanding (Diluted Average) 95,359,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.78
Apr2016 $1.91
Apr2015 $2.24
Apr2014 $1.97
Apr2013 $2.03
Apr2012 $1.92
Apr2011 $1.89
Apr2010 $1.78
Apr2009 $1.69
Apr2008 $1.69
Apr2007 $1.51
Apr2006 $1.43
Apr2005 $1.32
Apr2004 $1.08
Apr2003 $0.88
Apr2002 $0.70
Apr2001 $0.57
Apr2000 $0.48
Apr1999 $0.37
Apr1998 $0.31
Apr1997 $0.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.95
Apr2016 $2.03
Apr2015 $2.06
Apr2014 $1.95
Apr2013 $1.92
Apr2012 $1.84
Apr2011 $1.77
Apr2010 $1.68
Apr2009 $1.59
Apr2008 $1.50
Apr2007 $1.35
Apr2006 $1.21
Apr2005 $1.03
Apr2004 $0.84
Apr2003 $0.68
Apr2002 $0.55
Apr2001 $0.45

Recommended Reading:

Other ModernGraham posts about the company

Patterson Companies Inc Stock Valuation – February 2016 $PDCO
Patterson Companies Inc. Analysis – September 2015 Update $PDCO
Patterson Companies Analysis – June 2015 Update $PDCO
18 Companies in the Spotlight This Week – 3/15/15
Patterson Companies Inc. Quarterly Valuation – March 2015 $PDCO

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Patterson Companies Inc Valuation – August 2016 $PDCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Patterson Companies Inc (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. is a distributor serving the dental, veterinary and rehabilitation supply markets. The Company operates through three segments: dental supply, veterinary supply and rehabilitation supply. The dental supply segment provides a range of consumable dental products, clinical and laboratory equipment, and value-added services to dentists, dental laboratories, institutions and other dental healthcare providers across North America. The veterinary supply segment is a distributor of veterinary supplies, primarily to companion-pet (dogs, cats and other common household pets) and equine veterinary clinics. The rehabilitation supply segment provides a range of distributed and self-manufactured rehabilitation medical supplies and assistive products to acute care hospitals, long-term care facilities, rehabilitation clinics, dealers and schools. The Company’s operating units include Patterson Dental, Patterson Veterinary and Patterson Medical.

PDCO Chart

PDCO data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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ModernGraham Valuation of PDCO – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,453,715,257 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.11 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 31.01% Fail
6. Moderate PEmg Ratio PEmg < 20 20.62 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.12 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.11 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.11 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PDCO value chart August 2016

EPSmg $2.23
MG Growth Estimate 2.42%
MG Value $29.67
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $32.27
MG Value based on 0% Growth $18.92
Market Implied Growth Rate 6.06%
Current Price $45.89
% of Intrinsic Value 154.69%

Patterson Companies, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.92 in 2013 to an estimated $2.23 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Patterson Companies, Inc. revealed the company was trading above its Graham Number of $29.23. The company pays a dividend of $0.9 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 20.62, which was below the industry average of 40.07, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.39.

Patterson Companies, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

PDCO charts August 2016

Net Current Asset Value (NCAV) -$3.39
Graham Number $29.23
PEmg 20.62
Current Ratio 2.11
PB Ratio 3.12
Current Dividend $0.90
Dividend Yield 1.96%
Number of Consecutive Years of Dividend Growth 8

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $1,747,541,000
Total Current Liabilities $829,335,000
Long-Term Debt $1,022,155,000
Total Assets $3,520,804,000
Intangible Assets $1,325,889,000
Total Liabilities $2,079,058,000
Shares Outstanding (Diluted Average) 97,902,000

Earnings Per Share History

Next Fiscal Year Estimate $2.61
Apr2016 $1.91
Apr2015 $2.24
Apr2014 $1.97
Apr2013 $2.03
Apr2012 $1.92
Apr2011 $1.89
Apr2010 $1.78
Apr2009 $1.69
Apr2008 $1.69
Apr2007 $1.51
Apr2006 $1.43
Apr2005 $1.32
Apr2004 $1.08
Apr2003 $0.88
Apr2002 $0.70
Apr2001 $0.57
Apr2000 $0.48
Apr1999 $0.37
Apr1998 $0.31
Apr1997 $0.25

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.23
Apr2016 $2.03
Apr2015 $2.06
Apr2014 $1.95
Apr2013 $1.92
Apr2012 $1.84
Apr2011 $1.77
Apr2010 $1.68
Apr2009 $1.59
Apr2008 $1.50
Apr2007 $1.35
Apr2006 $1.21
Apr2005 $1.03
Apr2004 $0.84
Apr2003 $0.68
Apr2002 $0.55
Apr2001 $0.45

Recommended Reading:

Other ModernGraham posts about the company

Patterson Companies Inc. Analysis – September 2015 Update $PDCO
Patterson Companies Analysis – June 2015 Update $PDCO
18 Companies in the Spotlight This Week – 3/15/15
Patterson Companies Inc. Quarterly Valuation – March 2015 $PDCO
32 Companies in the Spotlight This Week – 12/6/14

Other ModernGraham posts about related companies

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Henry Schein Inc Valuation – July 2016 $HSIC
Quest Diagnostics Inc Valuation – July 2016 $DGX
Tenet Healthcare Corp Valuation – July 2016 $THC
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Medtronic PLC Valuation – July 2016 $MDT
Intuitive Surgical Inc Valuation – July 2016 $ISRG
Cardinal Health Inc Valuation – July 2016 $CAH
PerkinElmer Inc Valuation – July 2016 $PKI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Patterson Companies Inc Stock Valuation – February 2016 $PDCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Patterson Companies Inc (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. is a distributor serving the dental, veterinary and rehabilitation supply markets. The Company operates through three segments: dental supply, veterinary supply and rehabilitation supply. The Company’s dental supply segment provides consumable products (including x-ray film, restorative materials, hand instruments and sterilization products); basic and advanced technology dental equipment; practice management and clinical software; patient education systems, and office forms and stationery. The Company’s veterinary supply segment distributes veterinary supplies to companion-pet (dogs, cats and other common household pets), equine and large animal veterinarians and veterinary clinics, public and private institutions and shelters across the United States and in the United Kingdom. The rehabilitation supply segment distributes rehabilitation medical supplies and equipment.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PDCO

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,438,745,741 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.09 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 27.20% Fail
6. Moderate PEmg Ratio PEmg < 20 21.15 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.17 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.09 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.19 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PDCO value chart February 2016

EPSmg $2.06
MG Growth Estimate 1.81%
MG Value $24.97
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $29.87
MG Value based on 0% Growth $17.51
Market Implied Growth Rate 6.33%
Current Price $43.57
% of Intrinsic Value 174.46%

Patterson Companies, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.84 in 2012 to an estimated $2.06 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.33% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price. Patterson Companies, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

PDCO charts February 2016

Net Current Asset Value (NCAV) -$4.26
Graham Number $24.43
PEmg 21.15
Current Ratio 2.09
PB Ratio 3.17
Dividend Yield 1.97%
Number of Consecutive Years of Dividend Growth 7

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Oct2015
Total Current Assets $1,665,930,000
Total Current Liabilities $798,356,000
Long-Term Debt $1,034,884,000
Total Assets $3,451,838,000
Intangible Assets $1,354,674,000
Total Liabilities $2,088,581,000
Shares Outstanding (Diluted Average) 99,185,000

Earnings Per Share History

Next Fiscal Year Estimate $2.01
Apr2015 $2.24
Apr2014 $1.97
Apr2013 $2.03
Apr2012 $1.92
Apr2011 $1.89
Apr2010 $1.78
Apr2009 $1.69
Apr2008 $1.69
Apr2007 $1.51
Apr2006 $1.43
Apr2005 $1.32
Apr2004 $1.08
Apr2003 $0.88
Apr2002 $0.70
Apr2001 $0.57
Apr2000 $0.48
Apr1999 $0.37
Apr1998 $0.31
Apr1997 $0.25
Apr1996 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.06
Apr2015 $2.06
Apr2014 $1.95
Apr2013 $1.92
Apr2012 $1.84
Apr2011 $1.77
Apr2010 $1.68
Apr2009 $1.59
Apr2008 $1.50
Apr2007 $1.35
Apr2006 $1.21
Apr2005 $1.03
Apr2004 $0.84
Apr2003 $0.68
Apr2002 $0.55
Apr2001 $0.45
Apr2000 $0.37

Recommended Reading:

Other ModernGraham posts about the company

Patterson Companies Inc. Analysis – September 2015 Update $PDCO
Patterson Companies Analysis – June 2015 Update $PDCO
18 Companies in the Spotlight This Week – 3/15/15
Patterson Companies Inc. Quarterly Valuation – March 2015 $PDCO
32 Companies in the Spotlight This Week – 12/6/14

Other ModernGraham posts about related companies

Edwards Lifesciences Corp Valuation – February 2016 $EW
Cerner Corporation Valuation – February 2016 Update $CERN
Henry Schein Inc Valuation – February 2016 Update $HSIC
Medtronic PLC Valuation – January 2016 Update $MDT
PerkinElmer Inc Valuation – January 2016 Update $PKI
Quest Diagnostics Inc Valuation – January 2016 Update $DGX
Dentsply International Inc Valuation – November 2015 Update $XRAY
UnitedHealth Group Inc. Valuation – November 2015 Update $UNH
DaVita HealthCare Partners Inc Valuation – November 2015 Update $DVA
Align Technology Inc. Valuation – November 2015 Update $ALGN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Patterson Companies Inc. Analysis – September 2015 Update $PDCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Patterson Companies Inc. (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. is a distributor serving the dental, veterinary and rehabilitation supply markets. The Company operates through three segments: dental supply, veterinary supply and rehabilitation supply. The Company’s dental supply segment provides consumable products (including x-ray film, restorative materials, hand instruments and sterilization products); basic and advanced technology dental equipment; practice management and clinical software; patient education systems, and office forms and stationery. The Company’s veterinary supply segment distributes veterinary supplies to companion-pet (dogs, cats and other common household pets), equine and large animal veterinarians and veterinary clinics, public and private institutions and shelters across the United States and in the United Kingdom. The rehabilitation supply segment distributes rehabilitation medical supplies and equipment.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of PDCO – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,613,120,672 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.60 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 35.58% Pass
6. Moderate PEmg Ratio PEmg < 20 20.34 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.96 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.56 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PDCO value Chart September 2015

EPSmg $2.20
MG Growth Estimate 2.93%
MG Value $31.53
Opinion Overvalued
MG Value based on 3% Growth $31.85
MG Value based on 0% Growth $18.67
Market Implied Growth Rate 5.92%
Current Price $44.68
% of Intrinsic Value 141.70%

Patterson Companies Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned by the short dividend history and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.84 in 2012 to an estimated $2.20 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 5.92% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Patterson Companies Inc. (PDCO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PDCO Charts September 2015

Net Current Asset Value (NCAV) -$9.22
Graham Number $28.26
PEmg 20.34
Current Ratio 2.60
PB Ratio 2.96
Dividend Yield 1.88%
Number of Consecutive Years of Dividend Growth 7

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,801,802,000
Total Current Liabilities $694,135,000
Long-Term Debt $1,725,000,000
Total Assets $4,239,654,000
Intangible Assets $1,368,818,000
Total Liabilities $2,725,601,000
Shares Outstanding (Diluted Average) 100,162,000

Earnings Per Share History

Next Fiscal Year Estimate $2.42
Apr15 $2.24
Apr14 $1.97
Apr13 $2.03
Apr12 $1.92
Apr11 $1.89
Apr10 $1.78
Apr09 $1.69
Apr08 $1.69
Apr07 $1.51
Apr06 $1.43
Apr05 $1.32
Apr04 $1.09
Apr03 $0.88
Apr02 $0.70
Apr01 $0.57
Apr00 $0.48
Apr99 $0.37
Apr98 $0.31
Apr97 $0.25
Apr96 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.20
Apr15 $2.06
Apr14 $1.95
Apr13 $1.92
Apr12 $1.84
Apr11 $1.77
Apr10 $1.68
Apr09 $1.59
Apr08 $1.50
Apr07 $1.35
Apr06 $1.21
Apr05 $1.04
Apr04 $0.84
Apr03 $0.68
Apr02 $0.55
Apr01 $0.45
Apr00 $0.37

Recommended Reading:

Other ModernGraham posts about the company

Patterson Companies Analysis – June 2015 Update $PDCO
18 Companies in the Spotlight This Week – 3/15/15
Patterson Companies Inc. Quarterly Valuation – March 2015 $PDCO
32 Companies in the Spotlight This Week – 12/6/14
Patterson Companies Quarterly Valuation – December 2014 $PDCO

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Becton Dickinson & Company Analysis – August 2015 Update $BDX
Align Technology Analysis – Initial Coverage $ALGN
Varian Medical Systems Inc Analysis – August 2015 Update $VAR
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Patterson Companies Analysis – June 2015 Update $PDCO

200px-Patterson_Companies_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – June 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Patterson Companies (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. is an industry-leading specialty distributor serving the dental, veterinary and rehabilitation supply markets. The Company operates through three segments: dental supply, veterinary supply and rehabilitation supply. Patterson’s operating units include Patterson Dental, Patterson Veterinary and Patterson Medical. Patterson Dental offers over 90,000 products and a wide range of leading equipment, software, technology solutions and services. Patterson Veterinary, distributor of supplies, equipment, technology, vaccines and pharmaceuticals in the United States and the United Kingdom. The Company supplies products to companion-pet, equine and mixed-practice clinics. Patterson Medical is the distributor of rehabilitation and sports medicine products. Patterson Medical provides over 20,000 rehabilitation supplies, equipment and assistive living products.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $47.99
MG Value $27.69
MG Opinion Overvalued
Value Based on 3% Growth $29.87
Value Based on 0% Growth $17.51
Market Implied Growth Rate 7.40%
Net Current Asset Value (NCAV) $1.39
PEmg 23.30
Current Ratio 2.72
PB Ratio 3.16

Balance Sheet – April 2015

Current Assets $1,573,000,000
Current Liabilities $578,000,000
Total Debt $725,000,000
Total Assets $2,948,000,000
Intangible Assets $1,037,000,000
Total Liabilities $1,434,000,000
Outstanding Shares 99,700,000

Earnings Per Share

2015 $2.24
2014 $1.97
2013 $2.03
2012 $1.92
2011 $1.89
2010 $1.78
2009 $1.69
2008 $1.69
2007 $1.51
2006 $1.43
2005 $1.32

Earnings Per Share – ModernGraham

2015 $2.06
2014 $1.95
2013 $1.92
2012 $1.84
2011 $1.77
2010 $1.68

Dividend History

Conclusion:

Patterson Companies Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.77 in 2011 to only an estimated $2.06 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 7.4% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Patterson Companies (PDCO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Patterson Companies Inc. Quarterly Valuation – March 2015 $PDCO

200px-Patterson_Companies_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – March 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Patterson Companies Inc. (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. is an industry-leading specialty distributor serving the dental, veterinary and rehabilitation supply markets. The Company operates through three segments: dental supply, veterinary supply and rehabilitation supply. Patterson’s operating units include Patterson Dental, Patterson Veterinary and Patterson Medical. Patterson Dental offers over 90,000 products and a wide range of leading equipment, software, technology solutions and services. Patterson Veterinary, distributor of supplies, equipment, technology, vaccines and pharmaceuticals in the United States and the United Kingdom. The Company supplies products to companion-pet, equine and mixed-practice clinics. Patterson Medical is the distributor of rehabilitation and sports medicine products. Patterson Medical provides over 20,000 rehabilitation supplies, equipment and assistive living products.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $48.50
MG Value $27.37
MG Opinion Overvalued
Value Based on 3% Growth $29.77
Value Based on 0% Growth $17.45
Market Implied Growth Rate 7.56%
Net Current Asset Value (NCAV) $0.84
PEmg 23.62
Current Ratio 2.64
PB Ratio 3.32

Balance Sheet – January 2015

Current Assets $1,501,000,000
Current Liabilities $569,000,000
Total Debt $725,000,000
Total Assets $2,872,000,000
Intangible Assets $1,041,000,000
Total Liabilities $1,417,000,000
Outstanding Shares 99,500,000

Earnings Per Share

2015 (estimate) $2.22
2014 $1.97
2013 $2.03
2012 $1.92
2011 $1.89
2010 $1.78
2009 $1.69
2008 $1.69
2007 $1.51
2006 $1.43
2005 $1.32

Earnings Per Share – ModernGraham

2015 (estimate) $2.05
2014 $1.95
2013 $1.92
2012 $1.84
2011 $1.77
2010 $1.68

Dividend History

Conclusion:

Patterson Companies is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the short dividend record, along with the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.77 in 2011 to only $2.05 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.56% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Patterson Companies Inc. (PDCO) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Patterson Companies Inc. (PDCO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Patterson Companies Inc. (PDCO) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Patterson Companies Quarterly Valuation – December 2014 $PDCO

200px-Patterson_Companies_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Dow Components to Research – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Patterson Companies (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. (Patterson) is a distributor serving three markets: the United States companion animal (dogs, cats and other common household pets) and equine veterinary supply, and the worldwide rehabilitation and assistive products supply market. The Company operates in three segments: dental supply, veterinary supply and rehabilitation supply. As Patterson’s business, Patterson Dental is a distributor of dental products in North America. Webster Veterinary (Webster) is a distributor of veterinary supplies primarily to companion-pet (dogs, cats and other common household pets) and equine veterinary clinics across the United States. Effective August 2, 2013, it acquired Mercer Mastery, a developer of dental practice software, from Lovell Minnick Partners LLC’s Mercer Advisors Inc subsidiary. In August 2013, Patterson Companies Inc completed acquisition of the stock of National Veterinary Services Limited, a wholly owned subsidiary of Dechra Pharmaceuticals PLC.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $48.50
MG Value $27.53
MG Opinion Overvalued
Value Based on 3% Growth $29.82
Value Based on 0% Growth $17.48
Market Implied Growth Rate 7.54%
Net Current Asset Value (NCAV) $0.97
PEmg 23.58
Current Ratio 2.72
PB Ratio 3.30

Balance Sheet – October 2014

Current Assets $1,490,000,000
Current Liabilities $547,000,000
Total Debt $725,000,000
Total Assets $2,857,000,000
Intangible Assets $1,049,000,000
Total Liabilities $1,394,000,000
Outstanding Shares 99,400,000

Earnings Per Share

2015 (estimate) $2.23
2014 $1.97
2013 $2.03
2012 $1.92
2011 $1.89
2010 $1.78
2009 $1.69
2008 $1.69
2007 $1.51
2006 $1.43
2005 $1.32

Earnings Per Share – ModernGraham

2015 (estimate) $2.06
2014 $1.95
2013 $1.92
2012 $1.84
2011 $1.77
2010 $1.68

Dividend History

Conclusion:

Patterson Companies qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the short dividend history as well as the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.77 in 2010 to only an estimated $2.06 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 7.54% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Patterson Companies (PDCO) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Patterson Companies (PDCO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Patterson Companies (PDCO) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Patterson Companies Quarterly Stock Valuation – September 2014 $PDCO

200px-Patterson_Companies_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Patterson Companies (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. (Patterson) is a distributor serving three markets: the United States companion animal (dogs, cats and other common household pets) and equine veterinary supply, and the worldwide rehabilitation and assistive products supply market. The Company operates in three segments: dental supply, veterinary supply and rehabilitation supply. As Patterson’s business, Patterson Dental is a distributor of dental products in North America. Webster Veterinary (Webster) is a distributor of veterinary supplies primarily to companion-pet (dogs, cats and other common household pets) and equine veterinary clinics across the United States. Effective August 2, 2013, it acquired Mercer Mastery, a developer of dental practice software, from Lovell Minnick Partners LLC’s Mercer Advisors Inc subsidiary. In August 2013, Patterson Companies Inc completed acquisition of the stock of National Veterinary Services Limited, a wholly owned subsidiary of Dechra Pharmaceuticals PLC.
PDCO Chart

PDCO data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $40.27
MG Value $26.16
MG Opinion Overvalued
Value Based on 3% Growth $28.31
Value Based on 0% Growth $16.60
Market Implied Growth Rate 6.06%
Net Current Asset Value (NCAV) $0.22
PEmg 20.62
Current Ratio 2.60
PB Ratio 2.84

Balance Sheet – 4/26/2014

Current Assets $1,415,700,000
Current Liabilities $543,500,000
Total Debt $725,000,000
Total Assets $2,864,700,000
Intangible Assets $1,067,600,000
Total Liabilities $1,393,000,000
Outstanding Shares 103,970,000

Earnings Per Share

2014 $1.97
2013 $2.03
2012 $1.92
2011 $1.89
2010 $1.78
2009 $1.69
2008 $1.69
2007 $1.51
2006 $1.43
2005 $1.32
2004 $1.09

Earnings Per Share – ModernGraham

2014 $1.95
2013 $1.92
2012 $1.84
2011 $1.77
2010 $1.68
2009 $1.59

Dividend History

PDCO Dividend Chart

PDCO Dividend data by YCharts

Conclusion:

Patterson Companies qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short dividend history and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.68 in 2010 to $1.95 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 6.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Patterson Companies (PDCO) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Patterson Companies (PDCO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Patterson Companies (PDCO) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

 

Patterson Companies June 2014 Quarterly Valuation $PDCO

200px-Patterson_Companies_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies with a High Beta.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Patterson Companies (PDCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Patterson Companies, Inc. (Patterson) is a distributor serving three markets: the United States companion animal (dogs, cats and other common household pets) and equine veterinary supply, and the worldwide rehabilitation and assistive products supply market. The Company operates in three segments: dental supply, veterinary supply and rehabilitation supply. As Patterson’s business, Patterson Dental is a distributor of dental products in North America. Webster Veterinary (Webster) is a distributor of veterinary supplies primarily to companion-pet (dogs, cats and other common household pets) and equine veterinary clinics across the United States. Effective August 2, 2013, it acquired Mercer Mastery, a developer of dental practice software, from Lovell Minnick Partners LLC’s Mercer Advisors Inc subsidiary. In August 2013, Patterson Companies Inc completed acquisition of the stock of National Veterinary Services Limited, a wholly owned subsidiary of Dechra Pharmaceuticals PLC.

PDCO Chart

PDCO data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $39.18
MG Value $28.29
MG Opinion Overvalued
Value Based on 3% Growth $28.94
Value Based on 0% Growth $16.97
Market Implied Growth Rate 5.56%
Net Current Asset Value (NCAV) $0.17
PEmg 19.63
Current Ratio 2.27
PB Ratio 2.80

Balance Sheet – 1/25/2014

Current Assets $1,537,100,000
Current Liabilities $678,200,000
Total Debt $725,000,000
Total Assets $2,976,100,000
Intangible Assets $1,072,300,000
Total Liabilities $1,519,800,000
Outstanding Shares 103,920,000

Earnings Per Share

2014 $2.10
2013 $2.03
2012 $1.92
2011 $1.89
2010 $1.78
2009 $1.69
2008 $1.69
2007 $1.51
2006 $1.43
2005 $1.32
2004 $1.09

Earnings Per Share – ModernGraham

2014 $2.00
2013 $1.92
2012 $1.84
2011 $1.77
2010 $1.68
2009 $1.59

Dividend History
PDCO Dividend Chart

PDCO Dividend data by YCharts

Conclusion:

Patterson Companies qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the the lack of dividend payments, and the high price-to-book ratio.  The company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors.  As for a valuation, the company appears overvalued after growing its EPSmg (normalized earnings) from $1.68 in 2010 to only $2.00 for 2014.  This demonstrated growth is below the market’s implied estimate of 5.56% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Patterson Companies (PDCO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Patterson Companies (PDCO) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Henry Schein Inc Valuation – March 2018 $HSIC

Company Profile (obtained from Marketwatch): Henry Schein, Inc. engages in the provision of providing health care products and services to medical, dental, and veterinary office-based practitioners. It operates through the following business segments: Healthcare Distribution, and Technology & Value-Added Services. The Healthcare Distribution segment includes consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. The Technology & Value-Added Services segment offers financial services on a non-recourse basis, e-services practice, technology, network and hardware services. The company was founded by Henry Schein and Esther Schein in 1932 and is headquartered in Melville, NY.

HSIC Chart

HSIC data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HSIC – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,365,271,427 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.45 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 77.25% Pass
6. Moderate PEmg Ratio PEmg < 20 20.66 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.67 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.45 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.72 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.20
MG Growth Estimate 5.17%
MG Value $60.24
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $46.35
MG Value based on 0% Growth $27.17
Market Implied Growth Rate 6.08%
Current Price $66.04
% of Intrinsic Value 109.63%

Henry Schein, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the low current ratio, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.38 in 2014 to an estimated $3.2 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.08% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Henry Schein, Inc. revealed the company was trading above its Graham Number of $40.52. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.66, which was below the industry average of 37.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.19.

Henry Schein, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$6.19
Graham Number $40.52
PEmg 20.66
Current Ratio 1.45
PB Ratio 3.67
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $4,033,260,000
Total Current Liabilities $2,776,215,000
Long-Term Debt $907,756,000
Total Assets $7,811,235,000
Intangible Assets $2,970,972,000
Total Liabilities $4,999,736,000
Shares Outstanding (Diluted Average) 156,234,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.99
Dec2017 $2.57
Dec2016 $3.10
Dec2015 $2.85
Dec2014 $2.72
Dec2013 $2.47
Dec2012 $2.16
Dec2011 $1.99
Dec2010 $1.75
Dec2009 $1.72
Dec2008 $1.32
Dec2007 $1.18
Dec2006 $0.91
Dec2005 $0.79
Dec2004 $0.66
Dec2003 $0.72
Dec2002 $0.63
Dec2001 $0.50
Dec2000 $0.34
Dec1999 $0.30
Dec1998 $0.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.20
Dec2017 $2.78
Dec2016 $2.81
Dec2015 $2.59
Dec2014 $2.38
Dec2013 $2.14
Dec2012 $1.92
Dec2011 $1.73
Dec2010 $1.52
Dec2009 $1.33
Dec2008 $1.08
Dec2007 $0.93
Dec2006 $0.78
Dec2005 $0.70
Dec2004 $0.63
Dec2003 $0.57
Dec2002 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Henry Schein Inc Valuation – February 2016 Update $HSIC
Henry Schein Inc. Valuation – October 2015 Update $HSIC
The Best Companies of the Medical Industry – September 2015
Henry Schein Inc. Analysis – Initial Coverage $HSIC

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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