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PetIQ Is A Good Deal But Has A Few Fleas

By Kurt Osterberg · On July 19, 2017

PetIQ (PETQ $14-16) is a small (~$350M sales) growth company doing an $85M IPO with Jefferies and William Blair as lead underwriters. The deal looks solid given that the company is gaining share in the large and growing market of pet medications, health and wellness products and flea and tick treatments. For the whole story see the PETQ IPO slidedeck.

Pet owners know there’s a bit of a racket when it comes to getting special foods, medications and wellness products for your dog or cat. In most cases, they have to be purchased from the vet at very high prices. It’s good to support your local vet but not being able to shop around for better prices and more convenient delivery doesn’t sit well with consumers.

Because the channel is so controlled there are few good generic choices. For example, flea and tick “brands” like Frontline and Advantix are expensive and rarely discounted. There’s really no reason that generic versions of these products can’t be offered at much lower prices.

Here are some highlights from our annotated PetIQ roadshow transcript:

The $8.4 billion in the veterinarian market is made up of between $5.6 billion of pet prescriptions, $1.8 billion of flea and tick products, and $1 billion of other health and wellness items

PetIQ started as a pure distributor providing access to branded products. Then launched their own branded generic versions of many products – now these make up 40% of sales.

There are a few barriers to entry in this business including FDA and EPA certification and pharmacy compliance. Having the complete array of pet products is also important for retailers like Walmart and Costco.

Potential new legislation giving consumers the right to get a copy of pet prescriptions would be a boost for the business. Seems likely to happen.

June quarter revenues are estimated to be $85-87M (up 40% YoY) with net income of $5.6-6.0M.

There are a few fleas that investors should consider: