The veterinary supply industry may seem ho-hum -- after all, what's so exciting about companies that provide animal health products? But it's actually an upbeat growth sector, even though it's practically ignored by investors. While it's a relative pip-squeak compared to other industries, this group serves the needs of some 58,000 U.S. veterinarians. The industry generates sales of about $8 billion. Tiny, yes, but certainly growing.
Predictably, the leading companies in such a little-noticed corner get scant attention on Wall Street. But one standout in the group has gained at least a little notice for showing resiliency during the recession. That's MWI Veterinary Supply (MWIV), the leading distributor in the U.S. of animal health products. MWI provides some 50,000 products to more than 19,000 veterinarian clinics.
MWI's sales and earnings demonstrated consistent strength amid the economic turmoil, and its stock showed considerable punch, climbing to $42 a share on Feb. 16 from a 52-week low of $23 on Mar. 3, 2009. Operating earnings in the fiscal first quarter ended Dec. 31, 2009, climbed 31% to $12.7 million from a year ago.
Part of the strength is due to MWI's fast-growing Internet sales, which jumped some 34% in the first quarter. This segment accounts for 32% of total sales, up from 27% a year ago.
Companion Animals and Production Animals
Considering that MWI's current customer base is only about a third of the veterinarians in the U.S., the potential for growth is still enormous, analysts say. MWI's products include pharmaceuticals, vaccines, parasiticides, diagnostics, veterinary pet food and nutritional products. The company supplies the needs of both "companion animals" -- better knows as pets, such as dogs and cats -- and horses and "production animals," including cattle and other food-producing species. About two-thirds of MWI's revenues come from the faster-growth pet sector and one third from the production animal market.
With the acquisition in February of Centaur Services, a supplier of animal health products and services to vets in the U.K. for $47 million, MWI will gain a foothold in the European market. Analysts are now projecting that MWI's profits and revenues should jump significantly starting this year, and they see its stock climbing to at least $47 in a year.
"We view the deal as strategically significant as it marks MWI's entrance into the international vet market and may lead to other European market expansion over time," says John Kreger, analyst at investment firm William Blair, who rates the stock outperform. Centaur, the third-largest veterinary products company in the U.K. serving 1,200 vets, posted 2009 sales of $220 million and is expected to add roughly $140 million to MWI's revenues in fiscal 2010. And it should contribute earnings of 10 cents a share to MWI's bottom line in fiscal 2011.
Derek W. Leckow, analyst at Barrington Research, increased his fiscal 2010 revenue estimate to $1.14 billion, from an earlier $1 billion, with projected earnings of $2.30 a share. And for fiscal 2011, he lifted his revenue forecast to $1.35 billion from a previous $1.12 billion. Leckow also boosted his earnings estimate to $2.55 a share for fiscal 2011 from $2.45 previously. In 2009, MWI earned $2.02. He rates the stock outperform, with a 12-month price target of $47 a share. "We remain very encouraged by MWI's growth opportunities both domestically and now in the U.K.," says Leckow.
Analyst Phillip M Seligman of Standard & Poor's, who is also high on MWI and rates it a buy, says the company's "broad and expanding product" and service offerings, strong sales force and acquisition opportunities enable it to continue garnering market share and outpacing the industry's growth.
So far, MWI and its industry aren't on many investors' radar screens. That's partly because Wall Street is almost unaware of MWI and the animal health products business. Of the eight analysts who track MWI, four recommend buying the stock, while the other four rate it a hold.
The prospect that more analysts -- and investors -- may soon come to recognize MWI's leadership in a growth industry could certainly add pizzazz to the stock. Until then, consider MWI an undiscovered and underpriced value in a steadily growing industry.
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