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C.K. Cooper starts Heska at buy

June 8, 2012 by · Leave a Comment 

C.K. Cooper has initiated coverage of Heska (NASDAQ:HSKA) with a “buy” rating and $20 price target based on anticipated growth from Heska’s core companion animal business, driven by a rejuvenated sales force and a significant product launch that should provide a new stream of revenue to drive growth in 2013 and beyond. The stock closed at $11.54 on Thursday.

“Heska is an underfollowed, profitable company, with significant potential for continued revenue and earnings growth,” writes analyst Ken Trbovich. “The company generates in excess of a $1 a share in free cash flow and pays out a dividend that has a forward yield of 3.3%.”

Heska sells advanced veterinary diagnostic and other specialty veterinary products, with a core focus on the canine and feline markets.

When a commercial organization is rebuilt from the ground up, it provides a fresh new start and tremendous upside for a company that at one time last year had 40% of its sales territories unstaffed.

“Regional sales management was revamped and the inside sales team is being returned to levels about 50% larger than it was in the fourth quarter of 2011,” Mr. Trbovich said. “Early performance from hires made in latter half of 2011 has bolstered management’s confidence that half of its anticipated growth this year can come from this team’s improvement.”

Diagnostics testing is one of the biggest sources of revenue for veterinarians and is a recurring source of business both for the vet as well as the companies that supply them with the instruments, consumables, tests and services required, Mr. Trbovich said. As a result, the diagnostic sector of the veterinary market was the fastest growing sector in an industry easily characterized as recession resistant.

Mr. Trbovich said the analyzers and tests that Heska and its competitors provide to the market not only add diagnostic value for veterinarians and the pets they treat, but it also adds efficiency to their practices by speeding up what may otherwise be slow, time consuming processes.

Heska’s planned point-of-care analyzer is intended to speed the process of generating immunodiagnostic results, cutting wait time from five-to-10 minutes to one, he added.

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