This note was originally published June 07, 2013 at 12:00 in Healthcare
04 JUNE 2013
We have been stalking WOOF on the long side for some time given our expectation for accelerating volume trends in 2013. However, we had been expecting 1Q13 weakness, which is why we have avoided the name to date.
Fundamentally, our view hasn’t changed. We’re still expecting a recovery in 2Q13 SS Animal Hospital Metrics; partly because the 1Q13 comp was so difficult, but also because the 2Q13 comp is artificially deflated by utilization pull-forward into 1Q12 from the unusually warm winter. Additionally, 2H13 will also have additional tailwinds (see link below for more detail)
WOOF: 1Q13 Headwinds Preceding the Recovery
03/15/13 11:52 AM EDT
We are already seeing signs of a rebound. Veterinary Employment (our best read into WOOF SS Animal Hospital trends and one of two inputs in our WOOF regression model) is accelerating on a y/y basis into 2Q13.
Stock Setup Mixed
While 1Q13 results disappointed (worse top-line miss in almost 3 years), the stock rallied on the company's newly-created stock buyback program and a synthetic guidance raise (WOOF began excluding acquisition-related amortization from non-GAAP EPS).
The stock is no longer screening as a clear-cut long given its recent outperformace. However, we have a bullish bias on the stock given our expectation for accelerating organic growth, which do not believe the Street fully appreciates.
POSITION MONITOR: The Hedgeye Healthcare Position Monitor is a reflection of our fundamental view on the stocks listed. The TOP IDEA’s section represents our highest conviction ideas.
6/07/13 - Nonfarm Payrolls, Consumer Credit
Thomas W. Tobin
Hesham Shaaban, CFA