The price of Petco Health and Wellness Company (WOOF) shares was up 17.9% after closing at $28.05 on June 14.
Petco is a health and wellness company focused on improving the lives of pets. The pet retailer is betting on soaring pet adoption rates, increasing spending on pet products, and its offering of services like pet hospitals, grooming, and animal training classes, to win love for its stock.
Currently, the company has an $8.47 billion market capitalization. WOOF has gained 9.6% in the past one month, but has lost 4.6% over the past year. (See Petco Health stock analysis on TipRanks)
Today, the announcement that the company will present virtually at the Evercore ISI Consumer & Retail Summit is expected to have boosted the WOOF stock to some extent.
Apart from the summit announcement, there could be other reasons for the spike in the share price.
Strong Pet Market Growth
If we go by numbers, per a report from Statista, total pet market sales have increased in the U.S. over the past years. Pet food was the highest selling pet market product category in the United States in 2020. Approximately 42 billion U.S. dollars of pet food was sold in 2020, a number which is expected to increase to approximately 44.1 billion in 2021.
Petco is well poised to capitalize on the growing pet market in the near term.
On May 20, the company reported impressive fiscal first quarter numbers. Petco results were driven by record sales and a rise in the number of new customers.
The U.S. pet retailer posted Q1 adjusted earnings of $0.17 per share and beat Street estimates of $0.09. A loss of $0.07 per share was reported in the same quarter last year. Net sales jumped 27% year-over-year to $1.41 billion and surpassed analysts’ expectations of $1.27 billion. Comparable sales growth was 28% during the quarter. Additionally, adjusted EBITDA expanded 45% to $125.7 million.
Also, the company provided strong fiscal 2021 projections. For fiscal 2021, the company projects revised adjusted EPS to be in the range of $0.73 to $0.76 per share, versus previous guidance of $0.66. Revenue is expected to land between $5.475 billion and $5.575 billion, versus the previous guidance of $5.33 billion.
Following the Q1 results, Wells Fargo analyst Zachary Fadem maintained a Buy rating and a price target of $30 (6.9% upside potential) on the stock.
Fadem commented, “All in, Q1 results should add further credibility to the narrative that WOOF has considerably improved its competitive position, the underlying category is strong/stable (despite lingering concerns), and the company’s multi-channel initiatives are resonating. With a +4%/+6% increase in the FY21 sales/EBITDA outlook now in the base, we continue to see a very achievable/beatable model for FY21.”
On June 2, another Citigroup analyst, Steven Zaccone, initiated coverage of the stock with a Buy rating and a price target of $31 (10.5% upside potential). The analyst remains positive about Petco’s growing vet services business and growing profits.
Consensus among analysts is a Strong Buy based on 5 Buys and 1 Hold. The WOOF average analyst price target of $29.40 implies 4.8% upside potential from the current levels.
Petco Health scores a 9 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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