Patterson Companies (NASDAQ:PDCO), a leading animal health and dental distributor, sank 17.7% from $46.95 to $38.65, cutting 60 basis points from the Fund’s return. The stock declined after the company delivered disappointing sales results, driven primarily by poor execution and the loss of exclusivity with its largest dental manufacturing partner. Turnover in the dental sales force and the ongoing uncertainty around the CEO search process further weighed on the stock. We’re holding onto our shares because we believe there are multiple ways to win going forward. The company operates in two disparate businesses, and we believe value could be unlocked if the company divests the animal health business and reinvests in the high-margin dental business. We also believe there is a significant opportunity to improve the company’s earnings power by reducing costs and increasing private-label penetration. With the stock’s valuation at a multi-year low, we think our upside is significant.
From Jerome Dodson (Trades, Portfolio)'s Parnassus Fund third quarter 2017 commentary.
