Eminence Capital Is Wagging Its Tail Over VCA Antech Inc (WOOF)

The closest peers for VCA Antech are IDEXX Laboratories, Inc. (NASDAQ:IDXX) and Petsmart (NASDAQ:PETM). Petsmart’s recent financial performance is similar to VCA Antech’s, with revenue and earnings up moderately in its most recent quarter compared to the same period in the previous fiscal year. The trailing P/E is 19, about even with where VCA Antech trades despite the two companies addressing different needs of pet owners. IDEXX is valued at a premium to these peers, with both its trailing and forward earnings multiples being over 20. Its net income rose 10% in the first quarter of 2013 versus a year earlier, but revenue growth was much lower and so we’d be skeptical that this degree of improvement in earnings is sustainable.

We can also compare VCA Antech Inc (NASDAQ:WOOF) to companies which operate human hospitals, such as HCA Holdings Inc (NYSE:HCA) and Tenet Healthcare (NYSE:THC). These two stocks carry forward P/Es in the 11-13 range; we’d imagine that part of the reason for this discount is that investors are concerned about future government policy regulating the (human) healthcare sector. Revenue growth at these two companies has been limited as well; however, their stock prices have exhibited strong performance with HCA up over 50% in the last year and Tenet more than doubling in price.

We’re not sure what Sandler and his team see in VCA Antech Inc (NASDAQ:WOOF). The company is growing its business but margins are falling as at least for now its highest-growth area is in relatively low margin animal hospitals. The current valuation already includes substantial future earnings growth, and with recent financials not being particularly strong we would avoid the stock at least for the time being.

Disclosure: I own no shares of any stocks mentioned in this article.