Entering text into the input field will update the search result below

Patterson (PDCO): Rotting From Within

Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Long/Short Equity

Seeking Alpha Analyst Since 2018

We specialise in exposing creative accounting at the worlds largest listed companies.

Our clients are licensed investment institutions. Using our proprietary Governance, Accounting and Performance risk factors, they are able to identify and adjust their accounting and reputational risk exposure.

We are licensed by the SFC in Hong Kong. We do not take positions in any of the companies we write about.


  • Rising risk of corporate collapse:Debt/EBITDA would have been well over 4x in FY20, without factoring.
  • Unexplained interest costs (Hidden leverage?).
  • Front loaded profits: PDCO books its LT vendor financing spread as an up-front capital gain.
  • Factoring is maxed out, collateralisation is up, and receivables are extending.
  • Declining sales quality and contracting margins.

Patterson (PDCO) is struggling. On-line competitors, eg Chewy (CHWY) in animal supplies, are taking share and profit. PDCO seems unable to protect its position. Revenue is stagnating and margins are down and its credit is declining. There is a rising risk that suppliers will cut credit, the business will collapse and they will default.

Financial engineering: Superficially, PDCO has stabilised revenue and cut its debt. In reality, it is propping up sales by funding its customers and obscuring debt levels by factoring receivables. Short term working capital has fallen, but long term receivables (bad debt?) and payables are rising and interest costs twice what they should be.

Declining business quality: Animal Health revenue is growing, but margins are close to zero. Dental revenue is down, despite vendor financing, and real margins have dropped 39%. Software and value added services revenue is flat. Cashflow would have been down 53% without the accounting gains from front-loading financing profit.

Poor governance: The board and management are protected by a range of poison pills, legislation and some tame shareholders. This could explain why management compensation keeps rising while the required goals for bonuses keep dropping. Management is being rewarded for destroying shareholder value.

See the video for more https://youtu.be/NfDibwyEX58

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.