“MWI Veterinary Supply, Inc. (MWIV, $104) — This Idaho-based medical equipment small-cap ($1.3 billion) keys on a very specialized group of end-users: animals. It sells its products, which include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment and pet food and nutritional products, to veterinarians in the U.S. and U.K. In the past year, it has taken in more than $1.9 billion in sales. ...
Strategy: Growth Investor based on Martin Zweig
“[Under this strategy,] the P/E of a company must be greater than 5 to eliminate weak companies, but not more than three times the current Market P/E because the situation is much too risky, and never greater than 43. MWIV’s P/E is 25.93, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
“Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. MWIV’s revenue growth is 21.99%, while its earnings growth rate is 24.90%, based on the average of the three-, four- and five-year historical EPS growth rates. Therefore, MWIV passes this criterion.
“Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (35%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (38.2%) of the current year. Sales growth for the prior must be greater than the latter. For MWIV this criterion has not been met and fails this test.
“The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
“The first of these criteria is that the current EPS be positive. MWIV’s EPS ($1.14) pass this test. The EPS for the quarter one year ago must be positive. MWIV’s EPS for this quarter last year ($0.91) pass this test. The growth rate of the current quarter’s earnings compared to the same quarter a year ago must also be positive. MWIV’s growth rate of 25.27% passes this test.
“Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous three quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for MWIV is 12.45%. This should be less than the growth rates for the three previous quarters, which are 12.68%, 20.69%, and 25.30%. MWIV passes this test, which means that it has good, reasonably steady earnings. ...
“A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. MWIV’s Debt/Equity (16.57%) is not considered high relative to its industry (52.53%) and passes this test.
“Guru Score: 85%.”
- John P. Reese, Validea Hot List, October 26, 2012