Animal Health at Good Value

With a significant number of products expected to lose patent protection over the next several years, we believe Animal Health International, Inc. (AHII - Snapshot Report) is well positioned to enhance margin expansion through the incremental addition of private label products to the product mix.

Animal Health’s existing infrastructure and longstanding supplier relationships on the production side represent significant comparative advantages, which underpin the company’s ability to grow both organically and via acquisition in both the production animal and relatively faster growing companion animal markets. In addition to its branded product offering, the company also distributes its own higher margin private label product lines, which are marketed under the RXV Products, AGRIpharm, First Companion, Mineral Max, and Ivermax brands.

The company is expected to report fourth-quarter financial results on September 18. Our current revenue and EPS estimates are $181 million and $0.17 respectively versus consensus estimates of $176 million and $0.14. Our Buy recommendation remains intact at current levels. We have valued the shares on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the animal health products sector. Our $9 price target represents a 17.3x times fiscal 2008 EPS of $0.52.

Read the full analyst report on AHII