We are updating our estimates for MWI following weaker-than-expected fiscal second-quarter bottom-line results. Recall that the company reported Tuesday morning, with EPS falling 4 cents shy of our target on lower margins. Management reiterated fiscal 2014 guidance for revenue and earnings, but the miss and lack of upside to guidance caused a 12% correction in the stock. Following Tuesday’s earnings call, we are maintaining our fiscal 2014 EPS target of $5.61 (up 13.4% and in the upper half of the unchanged $5.47 to $5.67 range), but are reducing our 2015 EPS target by 6 cents, to $6.44 (up 14.9%).

 Since reaching an all-time high of $189 in late January, MWIV has now declined 22% (including Tuesday’s correction). As a result, the stock’s forward earnings multiple has compressed in the last three months from a high of 28.8 times calendar 2014 earnings to 24.6 times today (or 21.6 times our calendar 2015 target). With the valuation premium to peer Henry Schein (HSIC $113.62; Outperform) now just 2.4 turns, we believe the stock is approaching a level that will attract renewed buying support. The stock’s 5-year average multiple on forward earnings is 21 times, which translates to $140. More importantly, we believe the key driver of valuation for the stock, organic revenue growth, should be stable to improving over the next several quarters, thanks to improved weather, a recovering cattle market, and better metrics from the U.K. We therefore maintain our Outperform rating on the stock. Model Changes

 Revenue. We are maintaining our revenue target of $2.92 billion (up 24.4%) for fiscal 2014, as management reiterated guidance for the full year. Organic top-line growth in the quarter was right in line with our 8% target, although Ivesco beat expectations by about 2%. We believe revenue guidance for the year appears to be somewhat conservative if the company can continue to limit attrition among production customers with overlap between Ivesco and legacy MWI. However, commentary surrounding diagnostic pricing pressure was troubling, prompting us to reduce our organic revenue growth target for fiscal 2015 from 10.0% to 9.0%. May 06, 2014

Stock Rating: Outperform Company Profile: Aggressive Growth Symbol: MWIV (NASDAQ) Price: $144.86 (52-Wk.: $115-$188) Market Value (mil.): $1,862 Fiscal Year End: September Long-Term EPS Growth Rate: 15% Dividend/Yield: None 2013A 2014E 2015E Estimates EPS Q1 $1.32 A$1.45 NA Q2 $1.19 A$1.32 NA Q3 $1.32 $1.53 NA Q4 $1.12 $1.32 NA FY $4.95 $5.61 $6.44 CY $5.89 $6.70 Sales (mil.) 2,347 2,920 3,213 Valuation FY P/E 29.3x 25.8x 22.5x CY P/E 24.6x 21.6x Trading Data (FactSet) Shares Outstanding (mil.) 13 Float (mil.) 11 Average Daily Volume 82,174 Financial Data (FactSet) Long-Term Debt/Total Capital (MRQ) 0.0 Book Value Per Share (MRQ) 34.8 Return on Equity (TTM) 16.0 Two-Year Price Performance Chart Sources: FactSet, William Blair & Company estimates 12/31/1212/31/13$0$20$40$60$80$100$120$140$160$180 MWI Veterinary is one of the largest distributors of animal health products such as pharmaceuticals

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