MWI Veterinary Supply: Recession Proof

MWI Veterinary Supply (MWIV) is a major distributor of animal health products to veterinarians throughout the United States and Canada. Its product lines include drugs, vaccines, capital equipment, pet foods, nutritional supplements, parasiticides and diagnostics. It serves both the commercial agricultural market and the family pet segments of the industry.

This is a relatively recession-proof business. Medical professionals will order and use the supplies and equipment needed to treat their patients regardless of economic conditions. This is especially true in the commercial agricultural end of the business where the health of the animals is imperative to the well being of the business. While the typical pet owner might defer some routine treatment for their beloved dog or cat it is unlikely they will skimp on necessary care for illness or injury.

MWI came public in August 2005 and each year since (FYs end Sep. 30) has shown all-time highs in sales, cash flow, earnings and book value. The company is virtually debt free with just $0.2 MM in total debt versus almost $13 MM in cash assets on their balance sheet.

Here are the company's per share numbers as reported by Value Line for all its publicly traded years:

FY ….……. Sales ….… C/F ….… EPS …… B/V ….... Avg. P/E

2005 …….. 46.96 …… 0.58 …… 0.68 …… 8.20 …… 32.7x

2006 …….. 52.49 …… 1.37 …… 1.25 ……11.22 ...… 24.1x

2007 …….. 59.06 …… 1.61 …… 1.40 …....13.31 …... 25.3x

2008 …….. 68.71 …… 1.87 …… 1.62 ……14.95 …... 21.6x

From FY 2005 through FY 2008 revenues grew by 46.3%, cash flow increased by 222.4%, book value improved by 82.3% and EPS surged by 138%. This was accomplished through acquisition of smaller distributors on top of organic growth. Over the three years net profit margins expanded from 0.6% to 2.36% in the year just completed in September.

The consensus estimates for FY 2009 and FY 2010 are now $1.79 and $2.05 per share despite the slow economic conditions.

Shares sold off significantly yesterday without any apparent news to account for the drop. The company reaffirmed its FY 2009 expectations for $1.75 - $1.85 in earnings per share and $900 - $950 in gross revenues.

I'm using yesterday's share price drop of around 20% to accumulate shares in this fine growth company while the valuation is the lowest ever. At $22.80, MWIV trades for just 14.1x last year's and 12.7x calendar year 2009's EPS versus previous average P/Es between 21x – 32x.

Even 18 times current FY expectations of $1.79 lead me to a $32.22 target price or plus 41% from the present price.

Is that possible? Sure. These shares peaked at $38.61, $44.60 and $45.11 in 2006-2007-2008 and fundamentals are much better now than ever before.

Disclosure: Author bought shares of MWIV yesterday.

Comments

[Paul Price:]

Please note that the chart above DOESN"T reflect the huge drop that occurred. Shares hit the $22's intraday and finished at $23.36.

I only started buying AFTER the sell-off.

2008 Dec 18 06:35 AM

[User 208632:]

There WAS an apparent reason for the drop. The new agreement with Pfizer "contains terms and conditions that are materially less favorable" as stated in the 8K. The company reaffirmed guidance but they should be explaining how these 2 facts reconcile Shame on them for not making a further statement today after seeing the reaction in their stock.


On Dec 18 06:35 AM Paul Price wrote:

> Please note that the chart above DOESN"T reflect the huge drop that
> occurred. Shares hit the $22's intraday and finished at $23.36.
>
>
> I only started buying AFTER the sell-off.

2008 Dec 18 04:17 PM

[Paul Price:]

From the company's statement within the filing they implied that there would be offsetting profits to keep their guidance consistent with previous numbers.

Like you, I would have liked to hear their justification for that.

The shares look cheap if they can earn what is expected.

2008 Dec 18 06:26 PM

[Paul Price:]

With MWIV shares around $40 I'm taking profits.

Aug 07 02:39 PM

[Paul Price:]

Zacks now loves MWIV… where were they at $22.80/share?

Aggressive Growth MWI Veterinary Supply September 25, 2009

MWI Veterinary Supply Inc. (MWIV - Analyst Report)) topped the Zacks consensus estimate and exceeded the company’s own expectations.

Company Description

MWI distributes veterinary products included pharmaceuticals, diagnostics, capital equipment, and pet food across the U.S. The company services both companion and production animals.

Exceeding Expectations

On Jul 30 MWI reported its fiscal third-quarter results that “…exceeded our expectations regarding revenue growth, market share gains, operating expense control, earnings growth, cash flow and value-added services,” said Jim Cleary, President and CEO.

Revenue was up 19% to $248 million on a year-over-year basis. Net income spiked 22% to $6.6 million. MWI reported earnings per share of 54 cents, beating the Zacks consensus estimate by a dime. This was the third consecutive surprise.

Analyts React

Both analysts polled by Zacks raised current year estimates just before and after the announcement. The consensus rose 11 cents to $1.94 in the past 2 months.

Next year’s estimates are now averaging $2.14, up a dime in the same period. If expectations are met, the earnings growth rate would be more than 19%, with another 11% next year.

The Chart

Shares of MWIV continues to pressure the 52-week high following the news, but may need a shot in the arm to get past that level. The next earnings report is scheduled for early November.

Sep 25 12:42 PM