If Fido gets sick, there's a chance you may take him to a veterinary hospital run by VCA Antech
Like a dependable hound, VCA Antech has rewarded investors with both solid earnings and share price growth over the past few years. The fourth quarter of 2004 was no exception: Revenue grew more than 33%, and net income was up almost 42%.
For the quarter, the company saw 10.5% growth in the lab business, as well as 38% growth in the hospital business. In the case of the latter, revenue was helped by 6.6% same-hospital growth and a 7.2% increase in revenue per transaction.
Veterinary care is certainly a ripe market for consolidation and expansion. Not only are people keeping more pets, but they're increasingly willing to spend considerable sums of money for their care. What's more, most veterinary hospitals are small independent operations, and VCA Antech can reap considerable benefits through the normal consolidator advantages of volume buying and more efficient back-office management.
Some aspects of the business have pessimists howling, though. The company carries nearly $400 million in debt (vs. only $232 million in shareholders' equity), insiders have been selling their shares, and serious competition looms in the form of Banfield pet hospitals, located conveniently in many PETsMART
Although the market for veterinary care is certainly large enough for two big players, VCA Antech's management is nevertheless forecasting slowing growth ahead. Looking into 2005, the company projects revenue growth on the order of 16%, with lower growth in both the lab and hospital businesses. While VCA Antech's business has the advantage of being somewhat insulated from economic cycles (most people care for their pets even if money gets a bit tight), that's still not exactly a greyhound-like growth pace.
Are these shares for the dogs? Trading at 25 times trailing earnings and 31 times trailing EV-to-FCF, the stock is at the high end of its (brief) trading range and above its anticipated EPS growth rate. While VCA Antech's business may be a candidate for best of breed, the valuation is no real treat at today's levels.
Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned, but he is, in fact, owned by six ferrets and a boa constrictor.