Earnings Scorecard: MWI Vet Supply - Analyst Blog

The announcement of MWI Veterinary Supply's (MWIV) fourth quarter and fiscal 2010 results on November 4, 2010, has triggered the positive revision of estimates among analysts for fiscal 2011 and 2012.

Previous Quarter and Fiscal 2010 Highlights

MWI Veterinary Supply reported an EPS of $0.71 in the fourth quarter of fiscal 2010, up 34% from $0.53 in the year-ago period and surpassing the Zacks Consensus Estimate of $0.61.

For fiscal 2010, the company reported an EPS of $2.70, well above the Zacks Consensus Estimate of $2.60 and the previous year's $2.02. However, the acquisition in February 2010 of U.K. based Centaur Services Limited, an animal health products supplier, impacts the current quarter.

MWI's revenues of $358.9 million for the quarter surpassed the Zacks Consensus Estimate of $334 million and were 45% higher than the corresponding period last year.

While 19.2% of the growth is attributable to business operations of the company in the U.S., 25.8% came from the acquisition of Centaur Services. For fiscal 2010, revenues came in at $1.23 billion, 30.6% higher than 2009 and marginally above the Zacks Consensus Estimate of $1.20 billion.

MWI provided its outlook for fiscal 2011. The company expects to report revenues of $1.41–$1.46 billion (representing a growth of 15%–19%) and EPS of $3.02–$3.10 (representing a growth of 12%–15%), which is better than our expectation.

For a full coverage on the earnings, read here.

Estimate Revision Trends

Following the release of fourth quarter results, estimate revision trends among the analysts depict a positive bias for the company's earnings in the forthcoming period.

Over the past 30 days, 2 of the 6 analysts covering the stock have made upward revisions for the first and second quarters of fiscal 2011, with estimates for fiscal 2011 being raised by 5 analysts. While none of the analysts have lowered estimates for fiscal 2011, only 1 has reduced estimate for the next two quarters. The same trend can be witnessed for the past 7 days.

MWI posted another strong quarter and provided encouraging outlook for fiscal 2011 although the environment for the veterinary market reflects flat-to-low growth. These factors prompted the analysts to raise their estimates.

MWI was able to increase its market share gain and is confident of continuing this trend. Apart from the contribution of 25.8% from the acquisition of UK based Centaur Services, the company recorded an organic growth of 19.2%.

Of the 19.2% organic growth, 40% was from existing customers with new customers responsible for the rest. New customers placed additional orders due to shortage of supply with one of the competitors filing for bankruptcy. 

MWI, with the intention to improve its infrastructure, 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 2010. The company is also on the lookout for suitable acquisitions, which will strengthen its operations.

Sales representatives have been increased considerably, which should enable the company to target the newer locations. MWI's new geographic territories, such as the Eastern and the Midwest US are expected to grow at a higher rate than Western US, where the company enjoys a strong hold.

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.

Magnitude of Estimate Revisions

Over the past 7 days, estimates for the first and second quarters of fiscal 2011 have increased by 5 cents to 73 cents and 2 cents to 72 cents, respectively. However, estimates for fiscal 2011 have undergone a minor upgrade of 3 cents to $3.07.  

Our Recommendation

We are pleased with the momentum maintained by MWI Veterinary Supply over the past few years. The company, one of the leading distributors of animal health products to veterinarians across the US, has acquired many companies to either expand its presence in areas where it has low market share or for venturing into new areas.

Also, the company has witnessed substantial market share gain amidst a low-growth environment. Based on the execution skill of the company and strong outlook, we have raised our estimates for 2011. As a result, the Zacks #1 Rank (Strong Buy) corresponds to the near-term outlook of the company.

However, we believe that these positive factors have already been reflected in the current share price. Consequently, on a valuation perspective, we have a “Neutral” recommendation.

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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