People love their pets.
Pet owners are slated to shell out an estimated $55.5 billion in pet care just this year, while around $14.21 billion of that will come from veterinary costs.
Even if you’re not an animal lover, those numbers should make your ears perk up.
Investors who saw the potential in this space have enjoyed tail-wagging year-to-date returns from pet stocks like Skystar Bio-Pharmaceutical (SKBI) and Aratana Therapeutics (PETX).
In fact, pet medical companies specifically have a leg up for several reasons. First, pet owners pay out of pocket. Pet insurance exists, but in the U.S. it is considered indemnity insurance, so pet owners must pay the full amount of care and are reimbursed later. For veterinary and pharmaceutical businesses, that means no lag in getting paid.
Another benefit for these pet pharma stocks is that regulatory periods are usually shorter than for human drugs, so investors see a return much faster.
So for the healthcare portion of your portfolio, you might want to start digging into these five pet stocks, all of which have already fetched impressive returns this year.
VCA Antech (WOOF)
Year-to-date return: 36%
I can tell you from personal experience — as a former veterinary assistant and a current owner of a very accident-prone cat — that VCA Antech (WOOF) has great brand loyalty among both veterinarians and pet owners.
The company’s diagnostics segment is one of the most respected lab testing services in the industry and, if your pet gets sick, you know board-certified veterinarians and specialists are at your side at any of the 600 state-of-the-art VCA Animal Hospitals nationwide. (Though you’ll probably be suffering just as much as your sick pet when you get the bill.)
VCA is the largest pet healthcare provider in the country, and the synergy between its four segments — hospitals, lab diagnostics, imaging diagnostics and veterinary practice marketing — is just what the doctor ordered for the VCA bottom line. In the latest earnings report, WOOF net income increased 19 % to $40.6 million and diluted EPS increased 18% to 45 cents. WOOF stock jumped 8% on the report.
And while WOOF might not have the greyhound-fast returns of a successful biotech, but it does have a clean bill of health as an established company. Its revenues have increased year-over-year for the past three years, and WOOF has beat or met analyst EPS expectations in seven of the past 12 quarters.
Petmed Express (PETS)
YTD Return: 34%
Petmed Express (PETS) is best-known for its discount drugs through its 1-800-Petmeds brand … but the company has been passing along the profits to investors too.
Petmed rebounded after a challenging 2012 when one of its key suppliers, Novartis (NVS), halted production of several popular drugs for heartworm, flea control and pet anxiety because of quality concerns.
This lowered Petmed customers’ average order amount by 4% and caused a decline in 2012 gross profits.
But this year Petmed ramped up its already-aggressive advertising and continued to expand its product lines. Net sales increased year-over-year in both the first and second quarters of 2013, and investors have bid PETS stock up to market-beating gains.
Another strong indicator of success is that PETS increased its quarterly dividend from 15 cents to 17 cents for a current 4.6% yield.
MWI Veterinary Supply (MWIV)
YTD Return: 46%
MWI Veterinary Supply (MWIV) distributes everything from vaccines to prescription pet food throughout the U.S. and the United Kingdom.
Though the stock has been trending upward since 2009, it really picked up after the second-quarter earnings release this July, when MWIV beat on both the top and bottom line. The company has now beat analyst expectations in each of the past four quarters.
MWIV also released solid guidance for year-end numbers, estimating 12% to 13% revenue growth and 16% to 17% EPS growth for fiscal year 2013.
No wonder MWIV is nearly doubling the broader market year-to-date.
Aratana Therapeutics (PETX)
YTD Return: 143%
Aratana Therapeutics (PETX) is a development-stage pet pharmaceutical with no revenues that’s barely out of the startup phase. Yet its stock price has more than doubled since its IPO this June despite recent weakness.
Why? Well, PETX has one aggressive growth plan.
About 30% of PETX gains came this month, on news that Aratana was accelerating its efforts to become a commercial-stage pet therapeutics company by acquiring Vet Therapeutics, which has a commercial-stage canine lymphoma treatment.
Until the acquisition, all of Aratana’s three compounds — two for pain relief, and one appetite stimulant — were still in the development stage for use in cats and dogs.
Plus, all five analysts following PETX stock give it a “buy” rating and the consensus price target is over $36, representing almost 75% upside from current levels.
Skystar Bio-Pharmaceutical (SKBI)
Year-to-date return: 206%
Skystar Bio-Pharmaceutical (SKBI) is a Chinese company with a diversified line of veterinary medications, vaccines and feed additives for pets and livestock.
There is a huge market for these products in China, especially after the avian flu crisis. According to Skystar, demand for pet and livestock vaccines is more than 70 billion doses, while the market supply falls short at 32 billion doses.
As for SKBI stock, the small cap is finally starting to recover after falling almost 90% from its 2009 highs through its lowest point in summer of this year. So what changed?
After several years of investing in R&D and expanding its product lines, Skystar received the first stage of veterinary vaccine Good Manufacturing Practice certification, which ensures production and quality control. Skystar estimates that the company will receive stage two certification in Q3. Vaccines are expected to add $3 million to $5 million to SKBI’s 2014 revenues.
Meanwhile, SKBI’s Q2 earnings showed significant improvements. Revenues ramped up almost 28% year-over-year, and earnings more than doubled to 49 cents per share.
As of this writing, Carla Lake did not hold a position in any of the aforementioned securities.
