After being dogged by years of unimpressive earnings and a wildly fluctuating stock price, Veterinary Centers of America Inc. finally has something to bark about.

The Santa Monica-based company, which runs the nation’s largest chain of animal clinics and the only set of laboratories in the United States dedicated to veterinary testing, had its first profitable year in five years and has finally seen its stock price stabilize.

For the year ended Dec. 31, 1997, the company reported net income of $11.2 million (53 cents diluted earnings per share), compared with a net loss of $14.6 million (92 cents) in 1996.

“The company, I think, is in a very good position,” said analyst Scott Kessler of Standard & Poor’s Equity Group. “They’ve basically come out of a very active time of purchasing assets, and now I think they’re more on a mature phase of their business. Now they can focus on running the business making it more efficient.”

Veterinary Centers’ spate of acquisitions grew the company, but at the expense of profitability.

Before June of 1996, Veterinary Centers had just 75 animal hospitals across the country. But soon after that, it purchased its largest competitor, Pet Practice Inc., which had 84 hospitals, and Pets Rx Inc., which had 16 hospitals.

While the two purchases more than doubled the company’s size, Veterinary Centers took a beating on Wall Street when the high cost of those purchases which resulted in $18.1 million in merger costs, restructuring costs and write-down of assets on 1996’s balance sheet were reported in mid-November. The stock dipped below $9 a share less than seven months after cracking the $30 mark.

“We missed earnings by a far shot, and got punished,” said Tomas Fuller, Veterinary Centers’ chief financial officer. “We had some digestive problems and missed earnings. But at the end of the day, we were doubling the size of the company. It ultimately gave us more revenue to leverage in investing in some resources. While it was painful, it put us in a whole new category to do new things.”

The company now has 165 veterinary centers in 26 states, and 10 laboratories that serve all 50 states a size that will allow it to become more profitable by keeping administrative costs low with a greater number of revenue streams, Kessler said.

Last week, shares in Veterinary Centers were trading at between $17 and $18. That’s still below its 1996 high, but analysts expect the stock to rise as more investors realize that the company has become profitable.

Santa Monica-based B. Riley & Co., which rates the company a strong buy, has a one-year target price of between $23 and $25 a share.

In the quarter ended June 30, Veterinary Centers reported net income of $6.1 million (28 cents), compared with $4.4 million (21 cents) for the like period a year ago. Revenues were $76.1 million vs. $63.2 million.

Aside from hospitals and laboratories, the company is in other animal-related businesses. It has a partnership with H.J. Heinz Co. to make nutritional dog and cat food; is invested in Veterinary Pet Insurance Inc., which sells health insurance for pets; and in March launched VCA FamilyPet, a glossy magazine about pet health care.

Marc Robins, editor in chief of Portland, Ore.-based Red Chip Review, which tracks small-cap companies, said Veterinary Centers could be “the Starbucks of the next millenium,” with multitudes of locations in major cities. He added that it is a particularly attractive stock because it is completely domestic, making it immune to economic problems abroad, and is practically recession-proof, since people will continue to own and care for pets even during bad times.

“I would bet you that if we ever had a true economic downturn, pet expenditures would continue to increase,” he said. “Latte expenditures would decrease.”