I love companies that have long-term secular trends in their favor. MWI Veterinary (MWIV) is surely one of those companies. It distributes animal health care products to veterinarians throughout the United States. It supplies over 19,000 vet practices nationwide and has products such as pharmaceuticals, diagnostics, pet food, and vaccines. As a dog lover and owner, I know how much it costs to take care of a pet and is similar to having a child in many cases. Millions of Americans feel the same way I do.
Plenty of Bark and Bite
The company posted excellent numbers for its quarter ending in September. Earnings per share came in at 71 cents, beating the published estimates by a dime. This was the fourth quarter in a row of exceeding estimates by at least 16%. Revenues of $359 million were a solid 45% higher than a year ago. Additionally, gross profit rose almost 31% during the quarter. I love the fact that the company is focusing on the internet to sell their products. Internet sales grew by 44% this year over last.
One of the main reasons I am bullish on this stock is the international growth opportunities. Until recently, it didn’t have much of an international presence, but that changed when it acquired a U.K. company called Centaur Services. This should provide a strong new source of revenue growth going forward and aid the company’s growth rate. It is also a great diversification move because it was too focused on the American market before this.
Analysts have been raising their forecasts for the company recently. Over the past month, this year’s estimates have increased 15 cents to $3.07 per share. All seven analysts covering the company bumped their numbers up. It is always a great sign when all the analysts are increasing their estimates together rather than a lone wolf sticking his neck out.
Multiple Expansion Coming?
Valuations aren’t cheap at over 17x next year’s earnings estimates, but given its growth prospects, I think it is worthwhile to pay up for that growth. MWIV is in high growth mode and I can see investors willing to pay up to 20x earnings for the stock. One small caveat is that daily trading volume is on the small side. Only about 60,000 shares change hands daily, so be careful not to trade the stock. It is a longer-term holding that should be held for at least a year, barring any unforeseen negative changes in the fundamental picture.
I think the company can do $3.75 next year and putting a 20x price/earnings multiple gives us a $75 target for the stock. That would be an attractive return going forward and could prove to be conservative if it keeps blowing out expectations as it has been.
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