Best Companies for Your Pets and Your Portfolio

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Peter Lynch always said to buy what you know. We all love our pets and realize how expensive they are to care for. Matter of fact, many would treat their pet before themselves. The pet sector is growing rapidly and the stocks within this sector have been great performers. The best bet is to not only use these company's services for your pets, but also add them to your portfolio as well.

The one-stop shop for everything pets

PetSmart (NASDAQ: PETM) is the one place to go for everything pets. The company offers its pet products at 1,278 stores and online. The company also operates approximately 196 PetsHotels for boarding dogs and cats.

For the latest quarter, earnings rose 15% to $0.98 per share. Comparable store sales grew 3.5%. The company expects comparable store sales to continue growing at the 3% to 4% rate. Return on equity is an impressive 36% and the stock's forward P/E is only 15.

As the economy continues to recovery, look for more pet owners to splurge on their pets and that will boost PetSmart. The company will also benefit in that it has expanded beyond being just a traditional pet store and now offers services such as grooming and medical care.

The go-to pharmacy for your pets

PetMed Express (NASDAQ: PETS) sells prescription and non-prescription medication for pets. The company has also branched into offering food, beds, crates, and other pet supplies.

In the company's latest quarter, revenues were down 8.6% from the previous year as consumers purchased more generic medications. This was due mainly because prescriptions from Novartis weren't available. Novartis suspended production at its Nebraska production facility because of safety irregularities. Net income did rise, however, as margins were higher and operating costs lower. The company remains debt free and has $33.65 million in cash.

PetMed Express is in the enviable position of not having any serious competitor. Consumers have found online medication purchases for their pets to be fast, convenient and cheaper than from a veterinarian. For income investors, the company pays an annual dividend of $0.60 per share for a yield of 4.5%. For investors, you get both growth and income by owning PetMed Express.

The animal hospital for your pets

VCA Antech (NASDAQ: WOOF) is the leading animal healthcare company in the United States and Canada. The company operates in two segments – animal hospital and laboratory. At the end of last year, VCA Antech operated 609 animal hospitals and 55 veterinary diagnostic labs.

In the company's last quarter, they beat earnings expectations, but missed on revenue expectations. Earnings increased 17% to $0.40 per share versus $0.34 in the prior year. Revenues did increase over 7% to $438.61 million from the prior year, but that was short of analysts' estimates for $447.21 million in revenues.

I like VCA Antech's business model. The company has no national competitor and the company is looking to buy other veterinary hospitals. The veterinary hospital business is very fragmented. I see great potential in rolling up the competing small veterinary hospitals. VCA Antech even advertises on its website that prospective sellers can submit their hospital for consideration as a buyout. This reminds me of how Wayne Huizenga rolled up video rental with Blockbuster Video and waste disposal with Waste Management.

How they all compare

<table> <tbody> <tr> <td> </td> <td> <p>PetSmart</p> </td> <td> <p>PetMed Express</p> </td> <td> <p>VCA Antech</p> </td> </tr> <tr> <td> <p>Market Cap</p> </td> <td> <p>$7.08 billion</p> </td> <td> <p>$264.18 million</p> </td> <td> <p>$2.33 billion</p> </td> </tr> <tr> <td> <p>Revenue</p> </td> <td> <p>$6.84 billion</p> </td> <td> <p>$227.83 million</p> </td> <td> <p>$1.73 billion</p> </td> </tr> <tr> <td> <p>Gross Margin</p> </td> <td> <p>0.31</p> </td> <td> <p>0.34</p> </td> <td> <p>0.23</p> </td> </tr> <tr> <td> <p>EBITDA</p> </td> <td> <p>$902.00 million</p> </td> <td> <p>$28.10 million</p> </td> <td> <p>$298.47 million</p> </td> </tr> <tr> <td> <p>Operating Margin</p> </td> <td> <p>0.10</p> </td> <td> <p>0.12</p> </td> <td> <p>0.13</p> </td> </tr> <tr> <td> <p>Net Income</p> </td> <td> <p>$397.26 million</p> </td> <td> <p>$17.17 million</p> </td> <td> <p>$40.79 million</p> </td> </tr> <tr> <td> <p>P/E</p> </td> <td> <p>18.62</p> </td> <td> <p>15.48</p> </td> <td> <p>58.02</p> </td> </tr> </tbody> </table>

Foolish assessment

I see the pet industry continuing to grow. As the housing market continues to recover, more new houses will be sold and that increases demand for pets to fill those homes. All 3 companies have carved out a niche in the booming pet industry and have no serious competitors yet. Further gains for all 3 stocks are likely as the economy strengthens in 2013.


Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends PetSmart and VCA Antech. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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