We recently reiterated our Neutral recommendation on MWI Veterinary Supply ( MWIV ) with a target price of $66.00.
The company reported fourth quarter 2011 EPS of 80 cents, which was in line with the Zacks Consensus Estimate but 12.7% higher than the year-ago result. The company also reported fiscal 2011 EPS of $3.40, at par with the Zacks Consensus Estimate but well ahead of the year-ago level of $2.70.
Revenues over the last 11 years have grown at a CAGR of 21%. MWI's expanding sales force fueled higher market penetration on the back of new customer wins and increased sales to existing customers. At the end of September 2011, the company increased its field sales representatives to 224 (from 217 in the year-ago period) with 170 telesales representatives (from 159) in the US. In addition, MWI has been emphasizing on value-added services, including the e-commerce platform, pharmacy fulfillment programs for both production and companion animal products.
Additionally, internet sales to independent veterinary practices and producers grew 34% year over year in the reported quarter. The company's organic growth in the US was driven by prompt customer service, rapid adoption of the e-commerce platform by veterinarians and strong performance of the sales force.
MWI seeks to maintain the ongoing growth momentum based on product expansion, higher sales force, improvement in operating expense structure and accretive acquisitions. Recently, in November this year, MWI acquired Micro Beef Technologies Ltd., a health products distributor as well as an innovator of computerized management systems for the production animal market.
Moreover, MWI is looking to preserve long-term customer relationships as well as build new ones. Organic revenues, attributable to existing customers represented approximately 56% of revenue growth during the reported quarter while new customers accounted for the rest. We believe 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 decline in consumer spending, we are encouraged by the company's strong 2012 outlook (annualized revenue growth of 19%−23% with EPS growth of 9%−15%). The revenue guidance surpassed the current Zacks Consensus Estimate. Given the execution skill of MWI and sturdy outlook, we have upped our revenue estimates for fiscal 2012.
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 Henry Schein ( HSIC ) and Lextron Animal Health. We are also concerned about the vendor dependency of the company.