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Tickers in this Article: ALGN, HSIC, PDCO, SIRO
Leading global distributor of healthcare products and services, Henry Schein Inc. (HSIC) disclosed the divestiture of its investment in a dental wholesale distributor in the Middle East. This reflects the company’s strategy to focus on areas with high growth potentials.

The Middle Eastern wholesale distributor served as an importer for Henry Schein that supplied offerings to other distributors. The company anticipates a one-time charge of $11-$13 million (13-15 cents) in the third quarter of 2013 from the divestment of its unprofitable, non-controlling interest in the entity.

Henry Schein will accordingly report third-quarter results after adjusting the impact of the one-time expenses associated with the divestment. The current Zacks Consensus Estimate is pegged at $1.20 per share, reflecting growth of 11.53% year over year.

As an entity that supplies healthcare products and services to office-based dental, medical and animal health practitioners worldwide, Henry Schein believes that the divestment will increase focus to office-based practitioners that serves as the company’s primary customer base.

This underscores Henry Schein’s commitment to serve the needs of office-based dental practitioners, schools and other institutions, its target market. We expect the company to sharpen focus on other high-growth geographies like the U.S., Australia and New Zealand. However, the European economy remains an overhang for Henry Schein.

Henry Schein continues to focus on its core dental business. Last month, the company’s U.S. dental franchise Henry Schein Dental entered a distribution partnership with Carl Zeiss Meditec Inc. to distribute the well-regarded portfolio of ZEISS dental microscopes and loupes.

Henry Schein should be aware of similar advances made by peers in the industry. Recently, Patterson Companies Inc. (PDCO) inked a strategic distribution agreement with Sirona Dental Systems Inc. (SIRO). Henry Schein needs to take note of moves made by such strong rivals. The industry is plagued by pricing pressure and competitive tussle for market share gains.

Henry Schein carries a Zacks Rank #3 (Hold). Other stocks such as Align Technology Inc. (ALGN), carrying a Zacks Rank #2 (Buy) is likely to do well.

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