Pet hospitals exiting a ruff patch
The business
People love their pets. VCA Antech Inc. has been banking on that for more than 25 years.
The company owns or manages more than 600 veterinary hospitals in the United States and Canada, with more than 3,000 veterinarians on staff. It also owns a network of diagnostic laboratories and sells radiography and ultrasound imaging equipment to veterinarians.
Launched in 1986, VCA has grown through a series of acquisitions, helping to boost revenue even as visits to existing hospitals fell. It now runs 609 pet hospitals, up from 379 in 2006.
The economic downturn hurt sales as revenue per hospital for those open more than a year fell for 10 consecutive quarters from 2009 to 2011, according to a research report by investment firm William Blair & Co. Such revenue has increased slightly for the last six quarters.
“If our pets are sick, we’ll spend the money,” said Robert L. Antin, the company’s co-founder and chief executive. “If they’re well, and it’s a bad economic time, they may say, ‘We don’t need to see the vet.’ So the economy has hurt us, just like it’s hurt everybody else.”
The latest
VCA recently opened a new flagship hospital, VCA West Los Angeles, a 42,000-square-foot facility on Olympic Boulevard.
The hospital has a cancer center, surgical suites, bone marrow transplant technology and a physical therapy center that includes hydrotherapy treatment. It provides emergency care and is a teaching hospital for postgraduate students.
“It is one of the most advanced animal hospitals in the world,” Antin said.
VCA owns 110 animal hospitals in California, its largest market.
The expansion comes amid encouraging news. The American Pet Products Assn. Inc. reported last year that the U.S. population of pets has grown to 189 million, including 165 million cats and dogs. About 73 million U.S. households own pets, about 62% of all households.
“We are seeing steady improvement and growth in the veterinary market, which bolsters our optimism for our overall growth prospects,” Antin said.
Accomplishments
As cash-strapped pet owners cut back on visits to veterinarians, VCA managed to increase revenue by adding new hospitals to its holdings.
In 2007, the company acquired Healthy Pet Corp., which operated 44 animal hospitals in Massachusetts, Connecticut, Virginia and Georgia. In 2010, it bought 23 hospitals operated by Pet DRx Corp. It now owns or manages hospitals in 41 U.S. states and Canada.
“We grew it by acquisition. We’ve never opened a hospital to compete in a community,” Antin said.
Challenges
When times are tough, veterinary care is one place consumers look to cut expenses. VCA’s revenue per hospital open more than a year was hurt by the slow economic recovery. Its earnings plummeted to $50.7 million last year, its fourth consecutive year of decline after peaking at $137 million in 2008.
So VCA needs to find a way to increase revenue and reduce costs. Antin said the company’s acquisitions have left it well-positioned to thrive as the economy recovers and pet owners’ discretionary income increases.
Analyst opinions
Four analysts have the stock as a buy, eight as a hold and one as a sell. The average one-year target price is $25.43 a share.
Voices
“The animal hospital industry is crowded with too much capacity, and competition will continue to weigh on growth,” said Kevin Ellich, an analyst who covers VCA for Piper Jaffray. He said he believes the company may start repurchasing its shares if revenue does not improve, and a buy-back plan would be “positive for the stock.”
“We continue to like the WOOF story, longer term, given current valuation levels and continued strength of the pet market,” said Charley R. Jones, an analyst with Barrington Research Associates Inc. “WOOF has proven an ability to treat pets in a cost-effective basis and grow through acquisition.”
“If the consumer and broader U.S. economic environment continues to improve, we believe VCA Antech should see stronger growth and better margin performance in the future,” said Ryan Daniels, a William Blair & Co. analyst.
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Stock Spotlight is a weekly profile of a notable public company in Southern California.
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(BEGIN TEXT OF INFOBOX)
The company: VCA Antech Inc.
Headquarters: Los Angeles
Ticker: WOOF
Employees: 10,500
Leadership: Robert L. Antin, chief executive since the company was founded in 1986
2012 revenue: $1.7 billion
2012 net income: $50.7 million
Stock price: $22.73 at Friday’s close
52-week range: $17.56 to $26
P/E ratio: 15.15, based on 2013 earnings estimate
Annual dividend: none
