UPDATE: ISI Group Upgrades Patterson Companies Following National Veterinary Services Acquisition

In a report published Monday, ISI Group analyst Michael Cherny upgraded the rating on Patterson Companies (NASDAQ: PDCO) from Cautious to Neutral, and raised the price target from $36.50 to $39.50.

In the report, ISI Group noted, “Ahead of FY1Q earnings and following the acquisition National Veterinary Services, we are upgrading Patterson from Cautious to Neutral and increasing our PT to $39.50. PDCO has been a significant laggard since our launch ~1 year ago, trailing its closest peer, HSIC, by ~1450 bps, trailing the XLV by ~1800 bps, and trailing the S&P500 by ~1150 bps. We view the accretion from the NVS acquisition, combined with contributions from continued share repurchases (we have modeled ~$0.10 of FY14 EPS related to buybacks) limits the downside potential for EPS and should allow the company to deliver low-double digit growth. While we still view the outlook for the company's core operations (ex. the Sirona relationship) as challenged, we now believe that capital deployment will allow the company to maintain its historical multiple in the ~9x range. We view potential upside to our estimates from any additional M&A, particularly if NVS serves as a platform for further acquisitions. This said, the company would need to see a steady acceleration of top-line growth, in addition to margin expansion, for us to become more constructive on the stock.”

Patterson Companies closed on Friday at $39.65.