NEW YORK, Sept. 26, 2018 /PRNewswire/ -- Report entitled "A Fully Vetted Upside Case" outlines how HSIC shares could offer 30% to 50% upside potential in the near-term based on an underappreciation for the value and growth profile of Vets First Choice's ("VFC"), a private company involved in the upcoming spin-off and merger with HSIC's Animal Health business.
- Henry Schein Announced The Creation Of Vets First Corp On April 23, 2018 Through A Spin-Off Of Its Animal Health Business And A Merger With Vets First Choice ("VFC"): We believe that investors are awaiting the S-1 (new security filing) and S-4 (merger filing) to obtain more information and future projections on Vets First Corp. Given the current information void, Spruce Point conducted big data analysis and a large proprietary survey of vets that reveals significant underappreciated growth at VFC.
- Proprietary Data Scrape Suggests VFC Could End The Year With 9,000 Vet Practices: In order to assess the current growth of VFC, Spruce Point developed an algorithm to process over 40,000 zip codes through Vets First Choice's "Vet Finder". Our analysis indicates that over +7,900 unique vets are on the VFC platform and that this represents 54% YTD growth. We believe that VFC's prescription management platform adoption is accelerating and that it is adding on average 80 new vets per week. Given recent momentum, we believe, that VFC's "install base" will grow +75% in 2018. This rate of adoption is significantly above the level last disclosed by HSIC in April 2018 and will be a key valuation driver of sell-side analyst financial projections.
- Proprietary Vet Survey Indicates Strong Cadence Of Vet Revenues On VFC Pharmacy Platform: Using our proprietary "Vets First Choice Database", we conducted a survey of over 100 vet practices to develop insights into their practice's sales levels and cadence on the VFC platform. Our results indicate that on average vets selling on the platform are generating revenue of $37K and $55K in their second and third full calendar years, respectively. Additionally, we find that vets making simple changes, such as no longer faxing prescriptions, are seeing 45% higher sales than peers still faxing scripts.
- VFC Can Accelerate Growth Given HSIC's Leading Position In The Animal Health Space: Henry Schein already services over 80,000 vets around the world and is the #1 animal health distributor and solutions provider in NA, Europe and Australia/NZ (>70% customer penetration). Furthermore, Henry Schein's animal health group employs a sales staff of ~680 employees vs ~100 employees at Vets First Choice. We believe that VFC is leveraging Henry Schein's brand, sales force and existing install base to rapidly deploy its product offering.
- Vets First Corp Will Be The Fastest Growing EBITDA Story In The Animal Health Sector: The newly created entity, Vets First Corp will be growing its EBITDA at a faster clip than any other pure play animal health company in our peer group (ELAN, ZTS, IDXX, HSKA, PETQ, PETS). We estimate that Vets First Corp will grow its EBITDA to ~$500M in 2020, more than doubling our 2017E EBITDA of $242M. Longer-term, we believe that the install base exiting 2020 could achieve between $2.2B and $4.0B of EBITDA should each Vet practice reach between $250K and $500K of sales on their Vets First Choice prescription platform. Spruce Point's base case sum-of-the-parts analysis yields an HSIC price target of $106 (+30%) per share on industry average multiple and $126 per share (+50%) by achieving a premium multiple to reflect its best in class growth trajectory.
Spruce Point Capital has a long position in Henry Schein, Inc. (HSIC) and stands to benefit if its share price rises.
About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.
Spruce Point Capital Management
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SOURCE Spruce Point Capital Management, LLC