MWI Veterinary Supply: Recession Proof

Dec.18.08 | About: MWI Veterinary (MWIV)

MWI Veterinary Supply (NASDAQ: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.