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Henry Schein, Patterson Companies Downgraded On Amazon Fears

Henry Schein, Patterson Companies Downgraded On Amazon Fears
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Cautious analyst note on Henry Schein; shares down more than 1% early (Seeking Alpha)

Online retailer, Inc. (NASDAQ: AMZN) and its aggressive expansion has put many retailers in a tight spot. Most recently, an analyst expressed concerns about its challenge to dental supplies and equipment distribution companies Henry Schein, Inc. (NASDAQ: HSIC) and Patterson Companies, Inc. (NASDAQ: PDCO).

The Analyst

Morgan Stanley analyst Steve Beuchaw downgraded shares of both Henry Schein and Patterson Companies from Equal-Weight to Underweight. The analyst also lowered his price target for Henry Schein to $65 and his target for Patterson to $29.

The Thesis

New evidence suggests Amazon is accessing "critical products" via DENTSPLY SIRONA Inc (NASDAQ: XRAY) and could likely access 3M Co (NYSE: MMM) and Danaher Corporation (NYSE: DHR) in 2018 or 2019, analyst Beuchaw said in a Wednesday note. (See Beuchaw's track record here.) 

The analyst noted a deterioration in price/mix and volumes in the U.S. and Europe due to customer consolidation, alternative channels, diminishing sales force productivity and reimbursement. The economics of dental consumables distribution, accounting for about 40 percent of Henry Schein's EBIT and 60 percent of Patterson Companies' EBIT, are under growing pressure, Beuchaw said. 

Morgan Stanley lowered its 2020 free cash flow forecast for both companies by 1-3 percent, implying 5-7 percent free cash flow growth compared to its coverage average of over 15 percent.

Morgan Stanley sees multiple compression over the next one to two years, as earnings per share growth slows from 10 percent to 5 percent.

The Price Action

Henry Schein shares are down 6.27 percent year-to-date compared to a steeper 11.5-percent drop by Patterson Companies.

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Latest Ratings for PDCO

Aug 2018Morgan StanleyMaintainsUnderweightUnderweight
Aug 2018BarclaysMaintainsUnderweightUnderweight
Aug 2018Leerink SwannInitiates Coverage OnMarket Perform

View More Analyst Ratings for PDCO
View the Latest Analyst Ratings

Posted-In: Morgan Stanley Steve BeuchawAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga


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