Cat scratch fever? Or passing sneeze?
VCA Antech (NASDAQ:WOOF) recently made the news when it issued guidance below analysts' expectations for 2007 and the market immediately whacked the company with a rolled-up newspaper. But things may not be as bad as they look.

Pound puppy adopted
When last VCA Antech was taken for a walk, the company had just released its second-quarter results in July 2006. Filling in the space, third-quarter results were good on year-over-year comparison:

9/30/2006

9/30/2005

Revenue

$251.60

$229.40

Operating income

$51.50

$44.10

Net income

$26.90

$22.30

Earnings per share

$0.32

$0.26


Margins

9/30/2006

9/30/2005

Gross

28.0%

27.3%

Operating

20.5%

19.3%

Net

10.7%

9.7%


Growth year over year

Revenue

10%

Operating income

17%

Net income

21%
From company SEC documents

The third-quarter results were especially encouraging, since they showed continuing growth and expanding margins. VCA Antech makes no apology that a major component of its growth strategy is from acquisitions. In 2004, much as a python might swallow a crocodile, VCA ate its biggest acquisition to date, the 67 hospitals from National PetCare. There was some concern that margins might be permanently damaged and growth slowed with the acquisition of the more poorly performing PetCare. The third quarter has done much to lay those concerns to rest.

How much is that doggie ...
The company has tags that read it's chronically overvalued, but it is a growth stock. Historical P/E ratios have been high, but not out of line over the last five years with other investor favorites in the pet sector such as PetMed Express (NASDAQ:PETS), PetSmart (NASDAQ:PETM), and Idexx (NASDAQ:IDXX).

WOOF rolls over and plays dead
Despite the previous good news, on Dec. 27, VCA Antech guided below analysts' expectations for fiscal year 2007. VCA forecasts earnings in 2007 of $1.27-$1.31 on revenues of $1.05 billion to $1.08 billion, below Wall Street analysts' expectations of $1.06 billion in revenue and earnings of $1.33. As you might imagine, the stock is down from that point.

However, VCA has a history of conservative guidance and manages to beat estimates by $0.01-$0.02 with some regularity. In February 2006, VCA said it initially expected 2006 earnings of $1.03 to $1.06 a share on revenue of $943 million to $962 million. That was revised upward this December to earnings of $1.21-$1.22 per share on revenue of $968 million to $975 million for fiscal year 2006. So I think investors may want to take the 2007 guidance as conservative.

Give a related article a home:

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Fool contributor Jean Graham owns shares of VCA Antech, PetSmart, and PetMed Express (OK, she's a sucker for cute fluffy animals). The Motley Fool has a disclosure policy.