Thursday, December 28, 2006

Color on news: VCA Antech (NASDAQ:WOOF)

Couple of firms comment on VCA Antech (NASDAQ:WOOF) after the co issued guidance for 2007:

- Piper Jaffray expects WOOF shares to be weak today after conservative FY07 earnings guidance was provided yesterday afternoon and would recommend using this weakness as a buying opportunity in this core mid-cap growth holding. VCA Antech has a track record of guiding conservatively and they believe last night's announcement is in line with this practice. Firm believes the company continues to experience strong momentum across each of its business segments, which could result in upside to the preliminary guidance provided yesterday afternoon. Initial FY05 guidance (provided in October of 2004) was ultimately exceeded by 8% or $0.07 per share and similarly preliminary FY06 guidance of $1.03-$1.06 will likely be outdone by $0.09 (PJ is forecasting $1.15 for FY06). They believe the underlying trends in the veterinary care market remain intact and expect this sector to record strong growth once again in 2007. Firm maintains Outperform rating on WOOF shares but lowers tgt to $39 from $40.

- Banc of America notes WOOF issued detailed 2007E financial guidance essentially in line with their revenue and EPS forecasts. It did bump its internal laboratory revenue growth goal to 8%-10% in 2007 versus 7%-9% historically, consistent with competitor IDEXX Laboratories' move in July, but medical technologies' revenue growth expectations are sluggish.

The firm wouldn't expect the stock to move much on the news, although expectations for WOOF have historically been high, with surprises poorly received. 2007E EPS guidance implies growth of 12%-15% over firm's 2006E forecast, lower than the 17% to 20% growth implied by its initial 2006E forecast, although the acquisition of Pet's Choice in mid-2005 clearly drove a robust 2006 experience. WOOF's 2007E expectations don't contemplate an incremental chain hospital deal, and material weakness would present an opportunity to own one of the better growth stories in firm's research universe. Maintains Neutral and $33 tgt.

- Citigroup notes the guidance implies revenue growth of approximately 9% and EPS growth of 12%. The company's average EPS growth rate for the past three years ('04-'06E) has been roughly 24%. Despite the decelerating growth, WOOF continues to trade at a premium valuation at 24.2x FY07E P/E (vs. its historical average of 22x since 2002). Reits Sell.

Notablecalls: I don't think WOOF will decline more than 1 pt following the news.

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