While reform continues to riddle the health care sector with uncertainty regarding the fiscal stability of Medicare and Medicaid, and the possibility of subsequent reimbursement rate reductions, the veterinary care space offers an attractive refuge to those investors seeking to benefit from the demographic trends and non-cyclical demand characteristics of human health care without the overriding risk.
“Certainly over the long term we are quite bullish on this space. We think it’s a very attractive investment alternative to the human health care companies, as veterinary medicine is not subject to many of the key issues or risks facing the human market,” said Ryan S. Daniels, a principal of William Blair & Company, LLC. “What I mean by that is veterinary health care is a cash-based business, so animal hospitals, like VCA Antech (WOOF), or laboratory diagnostic providers, like IDEXX Laboratories (IDXX), or distributors, like MWI Veterinary Supply (MWIV), don’t really have bad debt exposure. Compare that to a typical acute care hospital, with high-single- to low-double-digit bad debt.”
In addition, Daniels points out that vet care is immune to the third-party payer risk currently threatening human health care, and it is not subject to annual contract negotiations with managed care, malpractice risk or pending Medicaid uncertainty.
“We like the cash-based characteristics, people’s willingness to spend on their pets, that human-animal bond. It just has a lot of very attractive long-term features,” Daniels said. “We expect [veterinary care] to grow again this year. It was very modest growth last year, but long term I think it’s going to be similar to the past, which is roughly two times GDP growth in the U.S.”