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Analyst Blog

On Mar 28, 2013, we reaffirmed our long-term Neutral recommendation on MWI Veterinary Supply (MWIV - Analyst Report) following the strong first-quarter fiscal 2013 results. This leading distributor of animal health products carries a Zacks Rank #3 (Hold).

Why Neutral?

On Feb 4, 2013, MWI Vet reported robust double-digit growth to begin fiscal 2013 on a positive note. EPS rose 25.7% year-over-year to $1.32, reflecting a beat of 10.9% over the Zacks Consensus Estimate.

MWI Vet is witnessing growth across all regions and product categories. As a result, revenues increased 24% year over year to $572.8 million in the quarter, easily surpassing the Zacks Consensus Estimate of $532 million. On an organic basis, domestic growth was 16.6%, whereas sales growth in U.K. was 22%.

MWI Vet’s strategic approach to support growth momentum is yielding positive results. Its costs saving initiatives led to a 26.4% surge in operating income. Further, its efforts to expand sales force and provide value-added services resulted in an improved growth profile.

The company also resorts to inorganic route to fuel growth in a highly fragmented and competitive market. The latest buyout of Prescription Containers is expected to be immediately accretive for MWI Vet.

Evidently, MWI Vet’s business is fully based on its relationship with vendors. Thus, any adverse changes in vendor rebates might negatively impact the company. Going forward, its growth will largely depend on obtaining favorable terms from its vendors. While macroeconomic uncertainty and volatile commodity prices remain a cause of concern, management is also wary that the recent drought might adversely affect fiscal 2013 results.

In addition, competitive landscape remains tough and consolidation by competitors could result in a tussle for market share. Thus, we prefer to remain on the sidelines for MWI Vet.

On the other hand, we look forward to other healthcare stocks such as Henry Schein (HSIC - Analyst Report), The Cooper Companies (COO - Analyst Report) and Conceptus . These stocks carry a Zacks Rank #2 (Buy).

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