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MWI Vet Pinned at Neutral

Zacks Equity Research

On Sep 12, we reiterated our long-term Neutral recommendation on leading distributor of animal health products MWI Veterinary Supply Inc. (MWIV). Despite the consistent strong quarterly results, the company faces a low growth environment and economic uncertainty in U.S. and U.K., its major markets.

Why the Reiteration?

On Jul 29, MWI Vet reported its third-quarter fiscal 2013 EPS of $1.32, beating the Zacks Consensus Estimate by 6.5% and up 14.8% year over year. Revenues improved 9.3% to $606.4 million in the quarter. However, the result was almost in line with the Zacks Consensus Estimate of $607 million.

MWI Vet witnessed healthy double-digit growth in the U.S. helped by robust contributions from diagnostic lines and benefits from the PCI Animal Health buyout. The aggressive acquisition strategy also encourages confidence. The recent decision to buy IVESCO Holdings seems to be another geostrategic takeover to expand foothold in the production animal market.

The company continued to focus on improvement of cash flow and return on invested capital (ROIC) in U.K. However, revenues in the region remained flat on an organic basis. The macroeconomic climate in U.S. and U.K. might adversely affect MWI Vet’s performance. Management is also wary that drought conditions in the U.S. might adversely affect fiscal 2013 results in the production animal market.

Nonetheless, MWI Vet updated its fiscal 2013 guidance to reflect strong positive momentum. The company envisages revenues of $2.33–$2.36 billion (earlier $2.32–$2.36 billion) while EPS is forecast in the range of $4.89–$4.94 (earlier $4.79–$4.89). The revised outlook for revenues and EPS reflects annualized growth of 6.6%−12% and 7.1%−12.1%, respectively in the fourth quarter of fiscal 2013.

Estimate revision trend also underlines strong growth trend for MWI Vet. The Zacks Consensus Estimate for fiscal 2013 was revised 1.2% higher to $4.93 over the last 60 days. For fiscal 2014, the Zacks Consensus Estimate nudged up 0.9% to $5.55 over the same time period. Given the stellar earnings performance, consistent positive surprise and estimate revision trend, the stock carries a Zacks Rank #2 (Buy).

Stocks to Consider

While MWI Vet is an attractive pick, other Zacks Rank #2 (Buy) stocks such as Align Technology Inc. (ALGN), Cardinal Health, Inc. (CAH) and The Cooper Companies Inc. (COO) are also worth considering.

Read the Full Research Report on ALGNRead the Full Research Report on CAHRead the Full Research Report on MWIVRead the Full Research Report on COOZacks Investment Research