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Heska Corporation Message Board

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  • ohshaw ohshaw Aug 5, 2004 2:21 PM Flag

    Should longs be worried?

    I think this company has great potential. For one, they are an intellectual powerhouse. They have an amazing portfolio of patents (over 180) listed on their website and have received or licensed a dozen additional patents since they last updated their portfolio listing. The most recent patent was issued 2 days ago for a nucleic acid method for immunization of cats, issued August 3, 2004. Their employee roster is equally impressive. Their VP of R&D, Dr. Stinchcomb, was a Professor at Harvard University from 1984-1988 prior to joining Heska and holds a Ph.D. degree from Stanford University and a B.A. degree from Harvard University. The CFO, Napolitano, is a Yale graduate and former Director in health care investment banking with Credit Suisse First Boston. The CEO, Dr. Robert Grieve, Ph.D., is a founder with a large position in the company (~500,000 shares) and over a million shares in options. In fact, all these people have a major stake in the future of the company, not so much from shares now owned, but through options that will become exercisable if the company does well. In January of 2004, they introduced a new blood diagnostic device, the CBC-Diff, which contributed significantly to their 26% quarter over quarter revenue growth for Q1 of this year. The reviews of the CDC give it high praise and I suspect this new product will contribute to an even greater q/q growth for their upcoming Q2 report as distribution widens and the word spreads, not to mention that they have easy comps against Q2 of '03. If you look at this company's quarterly earnings and cash flow for the past 20 quarters, they show a nearly straight line curve fit which suggests that this year's earnings will break solidly into the black and by next year be in the range of .03-.06 per share per quarter. That's based on extrapolating a near-perfectly fitting straight line to their prior 20 quarters. If they can earn an average of just .03 per share for the next 4 quarters (.01, .02, .03, .06), that's .12 per year, giving them a PE of about 10. Based on their rate of improvement in the past 20 quarterly earnings, their earnings growth from there would be at a clip of about 55% per year. Based on this sort of information, and the streamlining and focusing of their operations done over the past 3 years to address the feline and canine care business, I think the likelihood of the stock moving to the +5/share area in the next 1-2 years is extremely favorable. Keep in mind, spending on veterinary care is about 7X higher today than it was a decade ago partially due to a steady rise in pet ownership (the growing middle class) and new procedures and drugs that significantly improve clinical outcomes, which is what Heska is about.

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