Henry Schein, Inc.

  • Spruce Point has a Strong Buy opinion on Henry Schein (HSIC) and sees 30% to 50% upside potential

  • We believe the upcoming spin-off of HSIC’s animal health distribution business will unlock substantial value for shareholders. Currently, investors are somewhat negative on HSIC’s dental business, and pricing and margin challenges are already widely known. HSIC currently has an 11% short interest that reflect this concern.

  • However, we believe investors are overlooking HSIC’s fast growing animal health business, that stands to benefit once it spins and merges with the privately held Vets First Choice (VFC).  HSIC brings strong relationships with vets worldwide, and VFC brings a high margin tech platform and pharmacy solution to help vets sell more to clients, while improving health outcomes for its client’s pets.

  • We have done unique due diligence on VFC, and believe it is growing materially faster than the numbers that were presented to Wall Street analysts/investors in April 2018. We’ve built an algorithm that runs US zip codes through VFC’s vet finder and believe they are on pace for on-boarding 9,000 vets vs. the 5,100 last disclosed à significant upside.  We have also conducted  ~100 surveys to determine customer satisfaction and revenue uplift potential from this synergistic merger. The feedback has been overwhelmingly positive.

  • The market env’t for animal health stocks is very strong: Eli Lilly just spun and IPO’ed Elanco last week, which was very well received. We believe that HSIC/VFC will be the fastest sales and EBITDA growth story in the industry, which should position it for significant multiple expansion. We like this situation because spin-offs tend to outperform the market once the new management team can have a greater alignment and incentive structure (we do believe that legacy VHC owners have a lot of skin in the game). VFC is run by the Shaw family which created billions of dollars of value at Idexx. We expect a significantly expanded shareholder base that can own VFC/HSIC and more analysts to assume coverage to say “buy” once the spin is completed. Our base case is ~30% upside to approximately $106 per share with up to 50% or $126 per share in a bull case scenario.


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