Sunday, December 23, 2007

Dental Stocks Look For More Bite

BY STEVE WATKINS

FOR INVESTOR'S BUSINESS DAILY

Posted 12/21/2007

People don't typically wait for the economy to get better before they go to the dentist.

Maybe that's why many took notice when Patterson (PDCO) Chief Executive James Wiltz blamed the economy for disappointing sales.

Dental supply firms have long been thought of as resistant to the economy's slumps. To a large extent that's still the case, says Jeff Johnson, analyst at Robert W. Baird & Co.

Read the whole article on the Investors Business Daily site.

"I still see dental as a great place to be in the next 24 months," he said. "These stocks do well in a slow economy. Dental tends to be recession-resistant."

A lot depends on which part of the dental business you're talking about.

Johnson did an in-depth study and found that spending on dental services has held up through recessions the past 40 years. That spending tends to bottom out 12 to 18 months after the recession's midpoint. And that dip in spending growth is only 1 to 2 percentage points.

"Even in recession, there's a very modest change in dental spending," Johnson said.

That takes care of the 75% of the dental supplies market that is in consumable items. These include toothpaste and other products that dentists use for routine treatments and checkups. Sales link closely to consumer dental spending.

"Demand for consumable supplies is really insensitive to the economy," said Derek Leckow, analyst at Barrington Research Associates.

Tighter Purse Strings

The other one-fourth of the market is in equipment. These are bigger-ticket items such as chairs, stands and lights, as well as high-tech gadgets like 3-D imagers.

Those sales are tied to dentists' spending rather than consumer spending.

The two aren't always the same. Dentists' economic outlooks can affect how much they invest in their business.

"That could cause them to temporarily delay spending," Johnson said.

That's the part of the dental market in which Patterson's sales are slumping.

While sales of core equipment such as chairs have stayed strong, high-end products have been hit. Dentists might hold off on items that run $150,000 or more.

Tighter credit is also affecting dentists' willingness to spend, Leckow says. Think of dentists as small businesses. If they're concerned that money could become tight, they'll slow their spending.

Read the entire article on the Investors web site.

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