Michael Waterhouse: Henry Schein (HSIC) and Patterson (PDCO) are two unique health-care companies that we rate wide moat, and we think they have wide moats for a few basic reasons. First, they have a very broad distribution scale that helps give them a low-cost edge amongst competitors.
Second, they also distribute to a very fragmented base of customers and suppliers in the U.S. We're talking roughly over 180,000 dentists and 60,000 veterinarians, and that helps keep pricing power stable.
And then lastly, a lot of these customers are sole practitioners, so they are dependent on these companies for a lot of back-office functions, such as software, repairing equipment, networking their systems, and so on. So, that helps keep customers a little bit more loyal to these businesses.
And we think they'll be able to sustain roughly 70% market share in the dental market and about 60% market share combined in the veterinary market. So, we continue to like the moats for these companies over the long term. We currently think that they're both roughly fairly valued, but we think investors should keep them on their watchlist for a future point of entry.