Earnings Scorecard: MWIV - Analyst Blog

The announcement of MWI Veterinary Supply's (MWIV) third quarter fiscal 2010 results on July 29, 2010, has triggered positive revision of estimates among analysts.

Third Quarter Highlights

MWI Veterinary Supply, one of the leading distributors of animal health products to veterinarians across the US, reported an EPS of 74 cents in the third quarter of 2010, up 37% from 54 cents in the year-ago period. The Zacks Consensus Estimate for the quarter was 59 cents.

The company reported $347.7 million in revenues, surpassing the Zacks Consensus Estimate of $327 million and 40% higher than the corresponding period last year. While 17% of the growth is attributable to business operations of the company, 23% came from the acquisition of Centaur Services.

Based on a strong third quarter and the acquisition of Centaur, MWIV raised its guidance for fiscal 2010. While revenue guidance has been increased to $1.19–$1.20 billion (previous guidance: $1.16–$1.18 billion), EPS is expected in the range of $2.58–$2.60 ($2.40–$2.45). If revenues meet expectations, it will represent a growth of 27% to 28% compared with revenues in fiscal 2009.

For a full coverage on the earnings, read: MWIV Beats, Raises Guidance

Agreement of Analysts

Following the release of third quarter results, estimate revision trends among the analysts depict a clear positive bias for the company’s earnings in the forthcoming period. Over the past 7 days, 3 of 7 analysts covering the stock have made upward revisions for the next quarter, with estimates for fiscal 2010 and fiscal 2011 being raised by 4 and 5 analysts, respectively. No downward revision in estimates has taken place for the stock.

MWI posted strong results in the third quarter of 2010. Apart from the contribution of 23% from the recently acquired UK based Centaur Services, the company recorded an organic growth of 17%. Of the 17% organic growth, 43% was from existing customers with new customers attributable for the rest. We are pleased to note that the company has witnessed substantial market share gains with both new as well as existing customers.

Moreover, MWI will continue to invest in technology and distribution centers. Consequently, the company will move to a larger distribution center in Visalia, California, which is expected to be completed in December of 2010. The company will also be on the lookout for suitable acquisitions, which will strengthen its operations.

The number of field sales representatives and telesales representatives has increased during the quarter which should boost top line going ahead. Also, MWI’s new geographic territories, such as the Northeast and the Midwest US have grown at a higher rate than Western US, the company’s stronghold.

In addition, MWI has been trying to focus on value-added services including the e-commerce platform, pharmacy fulfillment programs for both production and companion animal products and other value-added services. Internet sales to independent veterinary practices and producers grew by 44% in the third quarter of 2010 compared to the year-ago period. The proportion of products sold over the internet with respect to total sales improved to 36% compared to 32% in the prior year period.

Magnitude of Estimate Revisions

Although the magnitude of estimate revisions for the fourth quarter of fiscal 2010 is modest (1 cent), it is significant for the fiscal. Over the past 7 days, estimates for fiscal 2010 and fiscal 2011 have gone up by 15 cents and 11 cents to $2.59 and $2.85, respectively. A similar trend can be seen for the first quarter of fiscal 2011, with estimates increasing by 3 cents to 68 cents over the last 7 days.

Our Recommendation

In a highly fragmented veterinary market, MWI has been able to maintain strong sales growth. The company has acquired many companies to either expand its presence in areas where it has low market share or for increasing its focus in new areas. Besides, the company has witnessed substantial market share gains with both new as well as existing customers.

Based on the execution skills of the company and strong outlook we have an Outperform recommendation on the stock which corresponds to the Zacks #1 Rank (Strong Buy).

About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
 
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