We recently reiterated our Neutral recommendation on
MWI Veterinary Supply
) with a target price of $116.00.
Economic uncertainty in the U.S. and UK has affected both the
companion animal and production animal markets with tightening
credit. Moreover, volatile prices of milk, grain, corn and feeder
cattle along with changes in weather patterns affect demand in
the production animal market. Moreover, we are concerned about
the vendor dependency of the company.
Business of MWI Vet is fully based on its relationship with
vendors. The company's ability to sustain gross profit momentum
is largely based on obtaining favorable terms and access to new
and existing products from its vendors. As a result, any adverse
change in vendor rebates could negatively impact MWI Vet's
Despite all these adversities, MWI Vet posted yet another
strong quarter and provided its outlook for fiscal 2013. The
company's fourth quarter 2012 earnings per share (EPS) came in at
99 cents, surpassing the Zacks Consensus Estimate of 97 cents and
increasing 23.8% year over year. Revenue in the reported quarter
increased 30.9% to $551 million, ahead of the estimate of $537
Revenues over the last 12 years have grown at a compound
annual growth rate (CAGR) of 21.9%. Organic revenues,
attributable to existing customers, represented approximately 59%
of the domestic revenue growth during the reported quarter, while
new customers accounted for the rest. Solid double-digit growth
in both the companion animal and the production animal markets
contributed to a robust 14% year-over-year increase in organic
growth in this region.On the other hand, organic revenue growth
in UK during the quarter was 21% year over year, the highest in
UK since the Centaur acquisition in 2010.
As a result of such a positive quarter with respect to organic
growth, the company provided an encouraging fiscal 2013 revenue
guidance of $2.285-$2.335 billion representing annualized growth
of 10.1%−12.5%. The company also expects EPS in the range of
$4.66-$4.80 with annualized growth of 10.2−13.5% in 2013.
The company has adopted several key initiatives to boost
sales. This includes investment in technology and distribution
center infrastructure in the U.S. and UK. Moreover, MWI Vet is
emphasizing on new sales regions and plans sales force expansion
to increase market penetration. In fiscal 2012, the company added
90 new sales representatives, (50 among them as a result of the
acquisition of Micro Beef) and increased the number of its field
sales representatives to 316 (from 224 in the year-ago period) in
Moreover, MWI Vet is looking to preserve the long-term
customer relationships as well as build new ones. During the
quarter, the company formed a revised distribution relationship
a manufacturer of veterinary diagnostic products. Both the
companies entered into a non-exclusive distribution agreement,
per which MWI Vet, as a business partner of IDEXX, will also be
able to distribute other competitive diagnostic products.
However, MWI Vet operates in a highly competitive veterinary
distribution services market, with players like
) and Lextron Animal Health. Presently, MWI Vet retains a
short-term Zacks #3 Rank (Hold).
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