We recently reiterated our Neutral recommendation on
MWI Veterinary Supply
) with a target price of $96.00.
MWI's second quarter 2012 EPS came in at $1.04, surpassing
the Zacks Consensus Estimate of 96 cents and increased 25.3% year
over year. The company also reported a robust 38.2% increase in
revenues to $507.2 million, which comfortably surpassed the Zacks
Consensus Estimate of $465 million.
Revenues over the last 11 years have grown at a CAGR of 21%. The
company's expanding sales force has been able to increase market
penetration by gaining new customers as well as increasing sales to
existing customers. At the end of March 2012, the company increased
its field sales representatives to 298 (from 224 in the year-ago
period) with 168 telesales representatives (from 170) in the
In addition, MWI has been trying to focus on value-added
services, including the e-commerce platform, pharmacy fulfillment
programs for both production and companion animal products and
other value-added services.The company's organic growth in the U.S.
was driven by its prompt customer service, rapid adoption of the
e-commerce platform by veterinarians and strong performance of its
Additionally, independent veterinary practices have accounted
for more than 85% of the products sold. E-commerce sales to
independent veterinary practices and producers in U.S. improved
37%. Moreover, the company's revenues from veterinary pharmacy
programs increased by more than 46%.
Moreover, MWI is looking to preserve long-term customer
relationships as well as build new ones. Organic revenues,
attributable to existing customers, represented approximately 70%
of revenue growth during the reported quarter while new customers
accounted for the rest. We believe that these key strategies hold
immense potential for the company's future growth.
Despite the persistent flat-to-low growth rate in the veterinary
market, primarily owing to the decline in consumer spending, we are
encouraged by the company's strong 2012 outlook. The company raised
its revenue and EPS guidance to $2.0-$2.025 billion (earlier
guidance being $1.90-$1.95 billion) and $3.96- $4.06 ($3.85-
MWI expects to continue the growth momentum on the back of
suitable acquisitions, sales force expansion, improvement in
operating expense structure and investment in personnel, technology
and distribution centers. Based on this encouraging performance, we
have raised both the EPS and revenue estimate of MWI for fiscal
However, MWI operates in a highly competitive veterinary
distribution services market, characterized by volatile commodity
prices for milk, grain, corn and feeder cattle and changes in
weather patterns to affect demand in the production animal market.
The company competes with
) and Lextron Animal Health. We are also concerned about the vendor
dependency of the company.
Presently, MWI retains a short-term Zacks #2 Rank (Buy). Over
the long term, we have a Neutral recommendation on the stock.
HENRY SCHEIN IN (HSIC): Free Stock Analysis
MWI VET SUPPLY (MWIV): Free Stock Analysis
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