MWI Veterinary Supply Hit a 52-Week High: Can It Still Fly?

Shares of MWI Veterinary Supply (NAS: MWIV) hit a 52-week high on Friday. Let's look at how it got there and see ewhether clear skies are still in the forecast.

How it got here
MWI is benefitting from the fact that pet owners are more than willing to pay top dollar to ensure the health of their pets. Although health-benefit organizations boast decent pricing power with regard to human medicine and treatments, veterinary medicine is still a largely underinsured field, which allows veterinary practices to charge exorbitant fees for their services. In simpler terms: Big fees equal big margins, and that's the main reason MWI, which supplies pharmaceutical products, diagnostic testing kits, and food products to more than 25,000 veterinary clinics in the U.S. and U.K, is doing so well.

But this trend isn't just limited to MWI. Its peers are also getting in on the party, with PetSmart (NAS: PETM) notching a new 52-week high following an 18% increase in profits in its most recent quarter. PetMed Express (NAS: PETS) isn't far from a new 52-week high, either, after it boosted its dividend by 20% and reported a 12% rise in sales in its latest quarter. The trend here is very clear: Our pets are our family, and we'll pay up to keep them around us for a long time.


How it stacks up
Let's see how MWI Veterinary Supply stacks up next to its peers.

MWIV Chart

MWIV data by YCharts

It may not be as apparent here, as this is only a one-year chart, but over the past five years, MWI is up more than 150%.

Company

Price/ Book

Price/ Cash Flow

Forward P/E

Dividend Yield

MWI Veterinary Supply 3.8 25.9 21.2 N/A
PetSmart 5.5 11.5 16.8 1%
PetMed Express 3.4 23.2 17.5 4.5%
VCA Antech (NAS: WOOF) 1.9 10.8 14.5 N/A

Source: Morningstar, Note: Yields are projected.

With regard to veterinary medicine and supplies, there's a stock catered to everyone. If you prefer more stable growth and a hefty dividend, PetMed Express offers the best payout of the group. If high-growth pet supplies are on your list, it could be time to dial up MWI, but you'll completely give up your chance at a dividend -- for now, at least. If you want a trade-off of growth and dividends, PetSmart provides a brand name with a reasonable valuation and about a 1% dividend. If value is on your mind, then VCA Antech, a health insurer for your pets, could be just what the doctor ordered at just under 2 times book and 11 times cash flow. Frankly, all of these companies should get Fido's tail wagging ... that is, if your dog is involved in your investing decisions.

What's next
Now for the real question: What's next for MWI Veterinary Supply? That question really depends on consumer spending habits more than anything. As long as the trend continues whereby pets become more incorporated into family life, then MWI's growth should be stopped only by its production capabilities.

Our very own CAPS community gives the company a four-star rating (out of five), with an overwhelming 95.3% of members expecting it to outperform. Although I am extremely bullish on the long-term outlook for pet-related stocks, I have yet to pull the trigger on MWI in my CAPS portfolio.

The primary reason I've held back is largely due to valuation. I missed my opportunity to make a CAPScall of outperform a few months ago, but I will not miss the next time MWI dips. The company is beginning to really ramp up Internet sales, reporting a 34% jump in online orders last quarter, and has seen a strong rise in veterinary pharmacy benefits, which are, for all intents and purposes, still in their infancy. With people willing to spend big bucks on their pets, myself included, pet product and service companies just like MWI have a very bright future ahead of them.

Craving more input on MWI Veterinary Supply? Start by adding it to your free and personalized Watchlist. It's a free service from The Motley Fool to keep you up to date on the stocks you care about most.

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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of VCA Antech and PetSmart, as well as writing covered calls on VCA Antech. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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meddvm

Sean, you have no idea about anything that you are writing about.
MWI is a veterinary product distributor. They have a partner doing on-line pharmacy hosting for veterinary clinics but they compete with Target, wal-mart, costco and 1800Petmeds - and they are going to lose to them as the price differentials sweep sales away from veterinary clinics. If MWI isn't selling to veterinary clinics, they are not selling, while their suppliers - Pfizer, Merial, Bayer, etc are supplying the big retailers. This will not result in more prescriptions ( there are only so many dogs & cat with heart disease, thyroid disease,etc) , just a shift in sales. VCA Antech is a corporate owner of veterinary clinics, equipment manufacturers and diagnostic labs, an on-line pharmacy (vetstreet) - it is everything except a pet insurance provider.
Veterinary medicine operates largely without insurance, so everything purchased for pets come out of pocket from disposable income. This is why very few veterinary clinics have MRI or CAT scans. On the human side you only pay your deductables and copays, so price is low on the totempole of priorities. Pets have a price and cost sensitivity. Typically you aren't going to throw in the towel on granny or the kids because they cost too much. Veterinary medicine is a bargain compared to the same services from a human hospital. However the training, the real estate, the equipment and the drugs all come from the same sources and have the same or similar costs. Meanwhile, while pharmacy may account for 20-25% of in-clinic sales for veterinarians that number is dropping and so is the revenue associated with the sales. What will veterinarians need to do? Shrug and accept lower income with a 20% hole in their balance sheets? No, they will need to raise prices on the services they provide. Your local vet may partner with VCA antech's Vetstreet for on-line pharmacy service and fulfillment, but they will also be seeing a margin that drops to 5% instead of 20% profit. Consumers are being penny-wise and pound foolish and so are the pharma companies.

May 04 2012 at 5:03 PM Report abuse rate up rate down Reply