Pet-obsessed Americans love spending money on their four-legged friends. But during the recession, even veterinary hospital chain VCA Antech Inc. saw its growth slow markedly.
VCA took another hit last week when its largest investor apparently sold off a block of stock, driving the share price down and making it one of the biggest losers on the LABJ Stock Index. (See page 36.) Shares closed down nearly 6 percent to $20.20 for the week ended June 22.
VCA’s largest shareholder, Baillie Gifford & Co., is believed to have liquidated roughly three-quarters of its stake in order to raise cash quickly. The Edinburgh, Scotland, investment manager controlled 11.5 million, or 13.4 percent, of outstanding shares as of March 31.
The Scottish company could be not be reached for comment, but Michael Ruggirello, a Barrington Research equity analyst, thinks that Baillie Gifford’s move was an internal one and not related to VCA’s long-term prospects. In fact, he believes that with even a modest economic recovery VCA will emerge from the doghouse. He is among four of 11 analysts who follow the stock and rate it a “buy.” The remainder are “neutral.”
“This stock undoubtedly is a play on the economic recovery, so a return to worse economic conditions is definitely a risk to the company’s story,” he said. “(But) don’t underestimate what people are willing to spend on their pets.”
The West L.A. company is the nation’s largest operator of animal hospitals and veterinary diagnostic labs, and is the only national consolidator of veterinary practices. It has 528 practices in 41 states and 52 laboratories, including four in Canada.
However, its recovery has trailed the broader market. After posting revenue growth nearing 20 percent prior to the recession, that rate fell to 3 percent by 2009 and rose slightly to 5 percent last year.
VCA’s business model largely hinges on two trends. The first is aging baby boomer veterinarians interested in taking out equity from their practices. The second is younger veterinarians who are more inclined to work for a salary.
VCA executives expect they can continue growing the company by picking up more practices, given the thousands of independent practices that remain in a still highly fragmented industry. That means once spending picks up, so should its profit and revenue growth.
“Long term we don’t see any changes in fundamentals … based on our love and devotion and attachment to our pets,” said Chief Financial Officer Tomas Fuller at a June 15 investors’ conference in New York. “But clearly this economy is like nothing many of us have ever seen, so we are definitely feeling it more than we anticipated.”
