AndrewGreenBull's Blog : No.1 Pick in 2010

Were it let to me to buy the only one stock in 2010, I will pick HSKA without hesitate. This confidence is built on my long-term research of HSKA’s products and market.

Introduction:

Heska Corporation a leading provider of veterinary diagnostic and specialty products. The Company’s core focus is on the canine and feline companion animal health markets. HSKA’s business is comprised of two reportable segments, Core Companion Animal Health, which represented 89% of the company’s revenue for the twelve months ended September 30, 2009, and Other Vaccines, Pharmaceuticals and Products(OVP), which represented 11% of the company’s revenue for the twelve months ended September 30, 2009.

My takes:

*Total pet health spending (products and services) is estimated to increase 6.7% per year to nearly $30 billion in 2011. At the manufacturer level, demand for pet health products in the US is forecast to advance 5.4 percent per year to $4.9 billion in 2011. HSKA has a huge potential market to develop.

*HSKA has agents worldwide:
Products are available in the countries and regions listed below:
Australia
New Zealand
Canada
Europe (except Italy)
Hong Kong
Italy
Japan
Latin America
Malaysia/Singapore
South Africa
South Korea
Taiwan
Middle East (U.A.E./Qatar, Oman and Egypt))

Asian market is booming and the weak dollar makes HSKA’s products more attractive, and this definitely will boost HSKA’s 4th quarter sales. If you take a look of its 3rd quarter earning report, you will find that OVP sales increased significantly in international market. Isn’t it a good opportunity for HSKA to switch the focus from weak domestic market to strong international market?

*HSKA is 40% owned by institutions which include Barclays Global, Morgan Stanley, Perkins Capital, Wells Fargo……the newest data showed that HSKA’s short interest decreased 99.35% in December.

*HSKA swung to profit in third quarter and anticipates generating profit for the whole year.

Gross Margin increased to 37.4% for the nine months ended September 30, 2009 as compared to 37.0% in the corresponding period in 2008. Gross Margin increased to 38.0% for the three months ended September 30, 2009 from 37.8% in the prior year period. Lower costs on sponsored research and development projects in the 2009 period were a factor in the increase.

HSKA expects Gross Margin to increase for 2009 as compared to 2008.

For fiscal 2009 the Company expects approximately $75 million in revenue, including approximately $9 million in OVP revenue, operating income of around $1.65 million.

What convince me that HSKA will have a brilliant future is not only because of the company’s positive factors mentioned above, but also because of the company’s recent key developments:

*HSKA Announced supply agreement with Roche Diagnostics for the supply of blood gas products and affiliated consumables for the veterinary market on Nov 25

Isn’t it a good opportunity to cooperate with Roche and take the advantage of Roche’s sales channel? Now I am also expecting a strong 4th quarter sales following with a big rally of HSKA’s stock price.

*HSKA Announced extension of credit agreement with Wells Fargo on Dec 9.

This will help for the company’s capital liquidity, especially when HSKA is expanding international market.

* HSKA announced the first customer installation of the Company's new DRI-CHEM® 7000 Veterinary Chemistry Analyzer on Dec 14. New product + hot holiday sales will be the profit engine of HSKA in 4th quarter and 2010.

Some people may deem those couple things hereunder as negative factors, but I deem them as opportunities:

*Nasdaq Listing Qualification: I have to make it clear that HSKA has no listing problem in the near-term.

HSKA has 180 calendar days from August 3, 2009 to regain compliance with the minimum bid price requirement, which requires the company’s stock to have a minimum closing bid price of $1.00 for a minimum of 10 consecutive trading days. If HSKA fails to regain compliance with the minimum bid price requirement within 180 days, Nasdaq has informed HSKA that the company will be eligible for an additional 180 calendar day compliance period if the company satisfies the Nasdaq Capital Market initial listing criteria other than the minimum bid price requirement at that time.

I don’t think that HSKA will wait so long until next Feb to regain compliance. 4th quarter earning report will take HSKA out of the embarrassing situation if there is no nasty surprise.

*Economic hardship: the economy of the United States is recovering, so is the pet health care market.

HSKA has the experience of overcoming the economic and business hardship in 2002 and 2005, and I strongly believe that the company can recover from the third one based on the positive factors mentioned above. We already see the light of hope.

The current price of HSKA is way undervalued. I recently read an interesting comment from a person who has deep view of HSKA, he said: “buying Heska at this level is like buying a buck for 50 cents”. I agree with him to some extent, but it depends on when you are going to sell it. If you plan to buy now and sell at the end of next year, you are probably buying a buck for a dime.

When the 4th quarter earning is near, HSKA gets more and more attention. We can tell from the recent volume.

*Disclaimer: The author of this post is not a licensed analyst and the purpose of it is for information sharing and discussion only, not recommendation for any stock buying and selling activities. Please do your own research before making any trading decision.