VCA Antech Inc (NASDAQ:WOOF) reported Q2 earnings on July 25 announcing revenues of $465.3 million, a 6.1% increase yoy and adjusted diluted EPS of $0.46, 13.6% increase. Best of all CFO Thomas Fuller said,”Our consolidated operating margins were up 130 basis points to 16.0%, which — this second quarter is our second consecutive quarter of actually increasing consolidated operating margins, so that’s a great sign.” (source)
Margin expansion was the first topic of the analyst Q&A and CEO Robert L. Antin answered they were able to expand margins by better labor and supply-side management and reductions in animal hospital expenses.
The stock, while expensive at a 40.84 trailing P/E, is trading near its 52 week high of $29.38, up 55% over the last year. The forward P/E comes down to 16.37 with a PEG of 1.40. The company bought back $4.6 million worth of shares in the quarter, keeping cash at the ready for opportunistic acquisitions and more share repurchases.
Although VCA Antech competes with Idexx Laboratories in the animal diagnostics space, VCA Antech has the advantage; its dignostic tests are referrals from its own animal hospitals, thus creating a defensible moat.
The big dog in the room
Zoetis, formerly the Animal Health Unit of Pfizer, debuted on February 4 as one of the biggest IPOs since Facebook. As the biggest global animal health company, Zoetis added revenues of $4.3 billion to Pfizer’s coffers in 2012 alone. The trailing P/E is high at 33.27.
Although big-cap Zoetis has a yield of .90% it attracts a sizable short interest of 22.90%. Zoetis has several big pharma competitors in the space like Merck, Sanofi, Eli Lilly and Bayer but with an ever-expanding addressable market growth looks good. It has a PEG of 1.45.
Going forward things look bright for Zoetis as agricultural demand continues for livestock products that accelerate growth, such as antibiotics and products that reduce the need for water for livestock.
The company reports on August 6. Zoetis’ stock temporarily dived after a stock for stock deal in which Pfizer sold its 80% stake in Zoetis but earnings as a standalone should be a clue as to whether to buy or sell this company.
But they’re all so cute!
It’s hard to pick one pet stock from the litter but one is all you need to diversify a portfolio with such a growing global market. Whether you go small with yield in PetMed Express, for growth with MWI Veterinary Supply, big with Zoetis and its dual advantage as a global and agricultural play, or mid-cap VCA Antech for margin expansion, you should find a pet stock to keep you warm at night.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends VCA Antech.
The article Wagging the Tailwinds With Pet Stocks originally appeared on Fool.com and is written by AnnaLisa Kraft.
AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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