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.
The research report can be found on our website at
www.sprucepointcap.com and updates will be posted on twitter
@sprucepointcap.
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.
Contact
Sean Donohue
Spruce Point Capital Management
sean.donohue@sprucepointcap.com
212-519-9813
Spruce Point Capital Management, LLC is a member of the
Financial Industry Regulatory Authority, CRD number 288248.
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SOURCE Spruce Point Capital Management, LLC