Don’t Sell PetSmart Stock Yet: It May Have Upside

by Louis Navellier | March 6, 2014 10:21 am

Don’t Sell PetSmart Stock Yet: It May Have Upside

Welcome to the Stock of the Day.

PetSmart185 Don't Sell PetSmart Stock Yet: It May Have UpsideAfter displaying remarkable resiliency during the recession pet retailer PetSmart (PETM[1]) struggled to maintain the momentum in 2012. However, now that the company has topped earnings expectations for the fourth quarter could this signal a turnaround?

Find out today.

Company Profile

PetSmart is a one-stop shop for pet lovers across America. With nearly 1,300 stores in the U.S., Canada and Puerto Rico, 52,000 employees and more than 10,000 products, PetSmart is the go-to for almost all your pet essentials.

Beyond dog bowls and fish tanks, PETM also provides services, like PetHotels for boarding dogs and cats; Grooming Salons that offer nail trimming, ear cleaning and teeth brushing; pet training classes with accredited instructors; and full-service pet hospitals and veterinarian care.

Earnings Rundown

PetSmart banked solid earnings, with fourth-quarter EPS up 20% over the prior year period. The company ended the quarter with earnings of $1.24 per share on $1.8 billion in net sales. Analysts had called for earnings of $1.21 per share on $1.83 billion in revenue so PetSmart posted a modest earnings surprise and a minor sales miss.

Future Outlook

Looking ahead to the first quarter, management sees earnings between 99 cents to $1.03 per share, representing 1% to 5% bottom-line growth over Q1 2013. This is below the $1.07 consensus earnings outlook from the analyst community.

PetSmart also expects comparable store sales growth in the low-single digits. For fiscal 2014 the company forecasts earnings between $4.42 to $4.54 per share, above the $3.96 EPS consensus estimate, on 2% to 4% same store sales growth.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system[2]. Currently this Conservative stock is a D-rated sell in Portfolio Grader. This is due to institutional buying pressure, which has tapered off over the past 12 months. PETM receives a D for its Quantitative Grade.

On the fundamentals side, this company is doing better–it receives As for cash flow and return on equity and it earns Bs on operating margin growth and earnings growth. The other four metrics (sales growth, earnings momentum, earnings surprises and earnings revisions) receive Cs. PETM receives a B for its Fundamental Grade.

Bottom Line: As of this posting I consider PETM a D-rated Sell. However, due to the solid fundamentals backing this stock I could upgrade it to a hold after plugging in the latest earnings results this weekend.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website[3]!

Endnotes:
  1. PETM: http://studio-5.financialcontent.com/investplace/quote?Symbol=PETM
  2. Portfolio Grader ratings system: http://www.navelliergrowth.investorplace.com/portfolio-grader/
  3. my Portfolio Grader website: http://navelliergrowth.investorplace.com/portfolio-grader/

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