+ Watch PETM
on My Watchlist
The Company is a provider of products, services and solutions for the lifetime needs of pets.
Good profitability, improving financial metrics, leverage not too high, substantial share buyback program
I am bullish on PETM, not because Jana Partners and Longview Asset Management are advocating a private sale, which could provide an immediate pop for shareholders, but because I believe in PetSmart's basic business model of combining merchandise, especially high end consumable food products, with services that can’t be delivered by UPS via the Web. A lot of pet products are a race to the bottom (low price and margin), including toys, bowls, beds, some treats, and probably even some medicine like Frontline. I like the strategy of differentiating by offering high end and organic food products that still have a low value to weight ratio and are a regular purchase. Combining that with boarding and day care, veterinary services, and grooming attracts repeat customers. Not only will this model be resistant to on-line disruption, but near impossible for mass merchants (discount and grocery stores) to replicate. I don’t believe that #2 Petco or other chains who “might” replicate the model have added anywhere near the same level of services, thought they do compete in the food area.On the other side of the coin, the recent management transition has been followed by slowing growth and market under performance. I think the relatively new management will get it right. They are in the process of improving their product mix to increase margins and customer appeal. They have even modified their corporate message to focus more directly on their customers, which aren’t pets, but (often fanatic) pet owners.Bottom line is that unless management gets too distracted by the current activism, I think that PetSmart has a bright future as either a public or a private company. While a private acquisition might provide value in the short term, I feel that in the long term shareholders will gain more value if PetSmart remains public.
14.2 price/earnings ratio is low going back 5 years. 26.57 Return on Invested Capital (ROIC) is quite impressive, twelve trailing months. Debt/equity ratio of 0.42 is okay. Expanding industry with reliable payments from customers who think highly of their little best friends.
Outstanding financial position with a very solid F score. Industry leading profit margins and strong EBITDA growth. Fair market value of $70. A safety pick in a turbulent market.
Dividends500 tracks the 200 strongest dividends in the S&P 500. To qualify as a strong dividend, the company must meet two simple requirements:- A payout ratio below 50%- An increasing dividend from the prior yearBecause there are more than 200 dividend paying companies in the S&P 500 that meet these requirements, the qualifying companies with the largest dividend yields were chosen. Dividends500 intends to test this FactSet article, which highlights these strong dividend paying companies and their outperformance versus the S&P 500 as a whole (Page 12).http://www.factset.com/websitefiles/PDFs/dividend/dividend_12.16.13If you have questions or see something you think is inaccurate feel free to let me know.
As we are leaving the recession, consumers will be happy to spend more on luxuries such as pets. Petsmart is also getting into personalization of its services, something that is becoming more and more popular recently (think any online interactive service).*Research from http://risnews.edgl.com/retail-best-practices/PetSmart-Leverages-Analytics-for-Personalized-Experience91783
stock is beaten down recently. Good time to buy.
Good entry point for a company that knows how to execute.
Good ROIC, growing cash, no debt, higher revenues, busting in shares. There is a lot to like in Petsmarthttp://financials.morningstar.com/ratios/r.html?t=PETM®ion=USA&culture=en-USThanks to tom e. for flagging this one.
Changing My Caps to Reflect my investing strategy. I start with a simple screener trying to find undervalued dividend paying stocks. Then because I want to invest in things I understand I eliminate any businesses I have not heard of or in areas I lack knowledge ( Financials, Precious Metals). After that I check the Caps Rating and it gets a thumbs up if it is rated 4 stars or higher. Very few 3 star companies will get a thumbs up but occasionally i will go out on a limb with one.
Retail specialty market leader that has spurred growth with same store sales versus expansion. Ongoing product mix diversity and entrance into new markets should continue impressive revenue and income streak.
I think as discretionary income increases once again that plenty of people will continue to pamper their pets. PetSmart has many different ways to do that.
Solid and steady. I see so many people out there with dogs and poop bags. With the economy coming back and more discretionary income it should do well.
Buying dog food over the internet is not convenient. Now that people aren't losing their houses as often, PETM is more recession-resistant (people will cut back on a lot before they neglect the family dog).Valuation isn't too high (not quite a value stock), dividend growth is good, growth rate is good, largest pet retailer.If it goes lower, I will buy more. Long-term play.
PETM reported earnings yesterday - March 6, 2013. Here's what S&P had to say just one day prior to earnings:March 5, 2013 04:46 am ET ... S&P REITERATES BUY RECOMMENDATION ON SHARES OF PETSMART (PETM 65.60****): Ahead of earnings expected March 6, we are keeping our Jan-Q EPS estimate of $1.23 and maintaining our DCF-based target price of $82. Despite recent stellar results, we think the shares sold off over the past month on increasing fears related to competition from Wag.com (a subsidiary of Amazon.com), and the impact that increased spending on its own e-commerce site will have on profitability. While we don't discount these concerns, PETM has grown rapidly in recent years despite intensifying competition, and we continue to favor the company's recession-resistant characteristics.- - Michael Souers (S&P analyst)
PETM will benefit from their continued excellent same store sales and services as well as from a retiring Boomer who has money to spend on their pet(s) as their children have now grown
Much lower on very high volume.
People are spending crazy money on pets and PETM is in the sweet spot
I placed PETM on my caps on 11/20/08 at $15.78, excluding dividends. I wanted to note it. I will be keeping them on my CAPS because believe they will steadily beat the S&P500 for many years to come. I wrote my page 12 post on PETM on 12/10/2011. The price of the stock was $49.24 and the PE ratio was 20.43. Today the price is $69.69 or 41.5% higher, but the PE ratio is only 21.71 or about 6.3% higher. The price would have to fall to $65.58 to match the PE on 12/10/2011. So although the price is moving up very well, the PE isn’t, so the value range is creating a significantly higher price range which is always good for investors.The Company has improved its balance sheet even though they now pay a $0.66 per share dividend a year and repurchased $453 million worth of their common stock. TTM cash flow was $480.93 or $4.40 per share up from $458.6 million or $4.06 per share last year. This gives them a cash flow yield of 6.3%. In 2007, melamine-contaminated dog and cat food from China caused the death of many pets. That event accelerated the trend toward the purchase of premium and natural pet foods. PetSmart is doing a great job of exploiting that trend. They also have about 43.1% of the Pet industry market. Petco has about 20.7% of the market. The big potential growth driver for PetSmart is the decline of the over 13,000 pet shops that are independently owned in the U.S. The number of small pet shops is growing smaller each year. PetSmart buying power is much larger than those companies which give them a big advantage. I believe PetSmart will benefit from the contraction of the number of small pet shops for many years to come.I don’t think PetSmart will grow rapidly, but they should give investors a steady return and steady growth. They generate huge streams of cash flow on existing stores, so they can pay a larger dividend and/or keep buying back shares. I believe, they will easily beat the S&P500 over the next ten years.Back on October 4, 2011, the Dow bottomed at 10,362.26. During that period PETM PE dropped to 16.8. For the stock to trade at a PE of 16.8 today, the stock would have to drop to $53.93. Considering the fear levels prevalent when the Dow dropped last year, I would think the PE of 16.8 would be a really good bargain target price. However, there is no guarantee the stock price will go that low without some major help from the Dow. Their long-term prospects look very good.
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