Why VCA Antech's Tail Is Wagging

Chart: Scampering Up
Tainted pet food from China caused a spike in the demand for animal health care, and that has been a boon to VCA Antech (WOOF ), the largest operator of U.S. veterinary clinics. It has 376 clinics and 33 diagnostic testing labs. There was "a short-term gain from the China pet food issue," says Robert Mains of Morgan Keegan, who rates the stock "outperform." But VCA's long-term appeal, he adds, is the overall rise in demand for diagnostics and preventive medicine for pets. The sizzle, Mains says, is in the surge in lab tests, which are big profit generators. He forecasts earnings of $1.38 a share in 2007 and $1.61 in 2008, up from 2006's $1.17. The stock has been on a tear, vaulting from 28 a year ago to 38.37 on June 13. VCA recently bought Healthy Pet, which operates 44 animal hospitals in 10 states, with 150 vets on staff. Michael Cox of Piper Jaffray (PJC ) says the acquisition made "good strategic and geographic sense." Even after the buy, VCA represents less than 2% of the 25,000 total U.S. vet clinics, he notes. Cox rates VCA "outperform" with a 12-month stock price target of 46.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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