We recently reiterated our Neutral recommendation on MWI Veterinary Supply (MWIV) with a target price of $79.00.
The company reported second quarter 2011 EPS of 91 cents, which surpassed both the Zacks Consensus Estimate of 80 cents a share and the year-ago earnings of 74 cents per share. Revenues came in at $410.7 million, up 18.1% year over year. Higher revenues from the U.S (up 18.9%) and U.K (up 14.1% on the back of Centaur Services acquisition) led to the strong year-over-year growth.
Revenues over the last 10 years have grown at a CAGR of 20.2%. MWI’s expanding sales force fueled higher market penetration on the back of new customer wins and increased sales to existing customers. Additionally, 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.
MWI seeks to maintain the growth momentum based on product expansion, higher sales force, improvement in operating expense structure and accretive acquisitions. Recently in March this year, the company acquired Midwestern US-based Nelson Laboratories Limited, a distributor of animal health products to over 1,100 veterinary practices.
Moreover, MWI is focused on preserving long-term customer relationships as well as building new ones. Organic revenues attributable to existing customers represented approximately 40% 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.
The company raised its fiscal 2011 outlook based on these factors. Given the execution skill of MWI and strong outlook provided by management, we have upped our estimates for both fiscal 2011 and 2012.
However, MWI operates in the 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.
