Dental Distributors Slide As Morgan Stanley Says Sell On Amazon Threat

Shares of Henry Schein (HSIC) and Patterson Companies (PDCO) are sliding after Morgan Stanley analyst Steve Beuchaw downgraded both stocks to Underweight, a sell-equivalent rating, as he believes Amazon's (AMZN) headway in the dental supply sector and market softness are now undeniable.

SELL HENRY SCHEIN, PATTERSON: In a research note to investors this morning, Morgan Stanley's Beuchaw downgraded Henry Schein and Patterson Companies to Underweight from Equal Weight after uncovering new evidence that Amazon (AMZN) is accessing critical products from dental products maker Dentsply Sirona (XRAY) and could access dental offerings from 3M (MMM) and Danaher (DHR) over the next two years. Furthermore, the analyst pointed out that he sees signs that price/mix and volumes in the market are continuing to deteriorate both in the U.S. and Europe due to customer consolidation, alternative channels, and reimbursement. While Beuchaw thinks Henry Schein is "the best house in a tough neighborhood" and valuation still looks "generous," he sees persistent market growth moderation as likely and notes that Amazon adds pricing transparency/risk. On the other hand, the analyst believes Patterson Companies is facing more than just market headwinds and is concerned with the company's ability to stabilize the commercial organization behind new sales reps that could take another 6-9 months to ramp, during which time Henry Schein is likely to continue to pursue its customers. Beuchaw lowered his price target for Henry Schein to $65 from $73 and for Patterson Companies to $29 from $38.

PRICE ACTION: In morning trading, shares of Henry Schein have dropped about 3% to $69.05, while Patterson Companies' stock has slipped about 5.5% to $34.27.


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Michael Molman 10 months ago Contributor's comment

Amazon $AMZN has a history of disrupting every industry it goes into from retail to groceries, the question is whether or not companies within the dental supply space will be able to adjust quickly enough to meet the new threat.