Stock of the Month-MWIV

UPDATE: 11/29/2010  MWIV has fallen off our screen.  It is now trading at $61 up 15% from my initial recommendation August 31st when it closed at 53. While I believe there is considerable upside left, I'm selling MWIV to reinvest in stronger candidates. 



MWI Veterinary Supply (MWIV) is our stock of the week.  We’ll have a quick discussion and analysis to get things started.  MWIV distributes animal health products to veterinarians in the United States.  They have also recently expanded into England with their purchase of Centaur.  The company primarily offers pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, supplies, specialty products, veterinary pet food, and nutritional products.  As of September 30, 2009, it served approximately 20,000 veterinary practices. The company was formerly known as MWI Holdings, Inc. and changed its name to MWI Veterinary Supply, Inc. in April 2005. MWI Veterinary Supply, Inc. was founded in 1976 and is headquartered in Meridian, Idaho.

It’s been proven over and over again that people love their pets and will spend on their health as long as they are able.  Once again, America’s spending on pets has grown despite the recession, with a 5.4 percent increase in 2009, according to the American Pet Products Association.  The APPA’s annual comprehensive review shows spending on animals, food, supplies, veterinary care, grooming, boarding and pet sitting jumped to $45.5 billion in American in 2009, up from $43.2 billion in 2008.  The association projected another increase - of  nearly 5 percent- in 2010.  While growth came in all categories, health-care spending showed the biggest increase, with an 8.5 rise in spending on veterinary care — a result of medical advances leading to a greater range of services available.  “From CAT scans, root canals and cancer surgery to antibiotics, anti-depressants and even grief counseling, pet owners have more medical choices and spending options than ever before. This leads to an anticipated growth of another 6% in this category for 2010,” the APPA said.  In this weak economy it's nice to see some growth.

For the quarter ending June 30, 2010 the average analyst estimate for MWI Veterinary Supply was .59$/share.  MWIV blew away those estimates turning in .74$/share, a 25% surprise.  They also raised their outlook from 2.40-2.45$/share to 2.58-2.60$/share.  MWIV in normal years has (read not 2008 or 2009) had an average low p/e ratio of approximately 20.  With average expected earnings for 2010 of $2.59 per share and a multiple of 20 we are looking at $52/share.  And that is the low end.  Let’s look at the average hi p/e for the last five years.  The average hi p/e ratio is 28.  With a five year average EPS growth rate of 24% we don't think 28 is unreasonable.  Multiply that same $2.59 in earnings times 28 and you get a high of $72.52 per share.  With MWIV at 53.07 as I write this the upside is 36%.  And don’t forget September is almost here.  It won’t be long before analysts start using 2011 estimates for their valuations.  MWIV is estimated to earn $2.88 per share next year.  That same $2.88 times 20 gives over $80 per share.  MWIV looks pretty cheap to us!

Apparently we aren’t the only ones.  Take a look at a chart of MWIV for the last year and you see a nice rise from a low of about 35 to the low 50’s now.  Look a bit closer and you’ll see the stock is ready to breakout to a new 52wk hi over 55, though I believe a pullback to just below fifty is the preferred place to buy if you get the chance.  If I got in around 50 I’d use a sell stop below 48 to protect myself.  Given the stock’s strength during the recent pullback you may not get the chance at fifty.  8/31

This material is not financial advice or an offer to buy or sell any product.  At the time of this writing I am long MWIV.

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