Settlement Likely: Henry Schein shares have lost nearly a fourth of their value, while Patterson’s stock is down 30 percent since May, roughly when speculation of Amazon’s entry into their market started. After Henry Schein reported quarterly results on Tuesday, several analysts cut their price targets on its stock, mainly due to the risks associated with the FTC complaint. “While the FTC allegation is for injunctive relief and seeks no monetary damages or fines, there is no clear timeline to a resolution of the matter,” Evercore ISI analyst Ross Muken said in a research note. He lowered his rating on Henry Schein to “in-line” from “outperform” and said he expected gains in the company’s stock to remain muted until further clarity on the complaint, possibly in late 2018 or early 2019. The companies are likely to settle, legal experts said. In a similar complaint in 2015, a small Meridian, Idaho-based provider of drug-and-alcohol testing services settled with the FTC months after the regulator filed a complaint alleging the company was colluding with a rival to keep prices high. Antitrust lawyers, however, said the FTC’s complaint against the dental suppliers was more serious than usual and did not rely on just circumstantial evidence. “It appears the FTC has evidence of an explicit agreement between at least two of these so-called competitors and that is a stronger case than what you often typically see,” said Nicholas Gravante, an antitrust lawyer at Boies Schiller Flexner. Gravante is not involved with the complaint. Still, Wall Street analysts mostly remain bullish about these companies’ businesses, even with the looming threat of Amazon, which they said could take a while to play out. Last week, the Wall Street Journal reported that the ecommerce giant was looking to expand its business-to-business marketplace that already sells professional medical products and hospital consumables such as gloves. Analysts said the dental companies were shielded by their long-standing relationships with dentists, while their narrow-margin business model may make it tough for Amazon to undercut them. “I think Amazon is certainly a threat, certainly a negative, but not to the extent to which stocks like Henry Schein sold off,” said Kevin Kedra, an analyst at Gabelli & Co. Gabelli owns less than 1 percent of Henry Schein shares and about 2 percent of Patterson.
Published in Daily Times, February 25th 2018.
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