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Earlier today I posted how I had purchased shares of VCA Antech after getting the 'permission slip' to add a new position after selling some of my Morningstar stock at a targeted gain.  As promised, let's take another look at WOOF and I will share with you why I believe it deserves a spot on this blog and why I bought shares!

As I noted in my previous post, I first wrote up VCA Antech (WOOF) on  Stock Picks Bob's Advice on March 17, 2004, at a price of $34.69.  Adjusted for a 2:1 stock split, this pick price is actually $17.35.  WOOF is currently trading at $38.89 up $2.67 or 7.37% on the day.  This represents an appreciation of $21.54 or 124.1% since my original post!

What exactly does this company do?

According to the Yahoo "Profile" on VCA Antech (WOOF), the company

"...operates as an animal healthcare services company in the United States. It provides veterinary services and diagnostic testing to support veterinary care; and sells diagnostic imaging equipment, and other medical technology products and related services. The company operates in three segments: Laboratory, Animal Hospital, and Medical Technology."

How did they do in the latest quarter?

It was the announcement of their 4th quarter 2006 results after the close of trading yesterday that drove the stock higher today.  For the quarter ended December 31, 2006, revenue climbed 11.7% to $242.4 million.  Net earnings increased 13.4% to $19.3 million and diluted earnings per share were up 15% to $.23/share.    

The company beat expectations of $.21/share in earnings on revenue of $232.4 million. In another positive part of the report, the company raised guidance for 2007 to earnings of $1.29 to $1.33 per share, up from earlier views of $1.27 to $1.31/share.  In addition, they raised guidance on revenue to $1.07 to $1.09 billion, up from $1.05 to $1.08 billion previously estimated.

What about longer-term financial results?

Reviewing the Morningstar.com "5-Yr Restated" financials on VCA Antech, we can see the perfect picture of revenue growth climbing from $435.2 million to $839.7 million in 2005 and $957.9 million in the trailing twelve months (TTM).

Earnings have also increased steadily from $.28/share in 2002 to $.81/share in 2005 and $1.22 in the TTM.  The company has been increasing its shares outstanding modestly from 73 million in 2002 to 84 milllion in the TTM.  However, during this period, revenue basically doubled and earnings quadrupled.  This is an acceptable dilution imho.

Free cash flow has been positive and increasing overall with $61 million in 2003 increasing to $86 million in 2005 and $84 million in the TTM.

The balance sheet is adequate although the company does have a bit of long-term debt.  WOOF is reported to have $32.8 million in cash and $104 million in other current assets.  This total of $136.8 million, when compared to the $81.9 million in current liabilities yields a current ratio of 1.67. As I just noted, they also show $447.8 million in long-term liabilities  that doesn't appear to be a problem for them with their growing free cash flow and nice current ratio.

How about some valuation numbers on this stock?

Checking the Yahoo "Key Statistics" on WOOF, we find that the company is a mid-cap stock with a market capitalization of $3.25 billion.  The trailing p/e is a bit rich at 31.90 with a forward p/e of 29.22 (fye 31-Dec-07) estimated.  The PEG (5 yr expected) works out to a slightly rich 1.74. (I like PEG's between 1.0 and 1.5 if possible).

According to the Fidelity.com eresearch website, VCA Antech carries a Price/Sales (TTM) ratio of 3.07, compared to an industry average of 1.08.  The company, however, is more profitable than average with a return on equity (ROE) (TTM) of 27.07%, compared with an industry average of 20.64%.

Finishing up with Yahoo, WOOF has 83.5 million shares outstanding with 80.78 million that float.  As of 1/9/07, there were 1.92 million shares out short representing 2.4% of the float or 5.3 trading days of average volume.  We could well be observing a 'short squeeze' today as the stock climbs sharply on the back of good news.  

No cash dividend is reported and as I noted above, the company last split is stock as a 2:1 split in August, 2004.

What does the chart look like?

Examining the "Point & Figure" chart on WOOF from StockCharts.com, we can see a very strong price appreciation from $6.00 in March, 2002, to its current high of $38.71.  This is a very strong chart with little weakness seen in its price for the last several years.

Summary: What do I think?

Well, as you can tell I liked this stock well enough to buy some shares today!  Seriously, the stock is moving strongly higher in a relatively weak trading days likely on the back of good earnings and lots of short-sellers scrambling to cover.  The company reported solid earnings and revenue growth, beat expectations, and raised guidance for both!  That is about as perfect an earnings report as you could expect!

The Morningstar.com report looks nice with steady and strong revenue and earnings growth, a small increase in the shares outstanding, positive and growing free cash flow, and a solid balance sheet (although long-term debt is a bit significant). 

Valuation is indeed a bit rich with a p/e in the 30's and a PEG over 1.5.  The Price/Sales figure is also a bit higher than the industry average, but the return on equity suggests the company is also a bit more profitable.  Finally, there are lots of short-sellers (more than my '3 day rule'), and the chart looks quite strong.  It was enough to get me to buy some shares and that is exactly what I did!

Thanks so much for stopping by and visiting my blog.  If you have any comments or questions, please feel free to leave them right on the website or email me at bobsadviceforstocks@lycos.com.  If you get a chance, drop by and visit my Stock Picks Podcast Website.

Bob