PETM: Hold PetSmart Until It Rebounds

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Early this week PetSmart, Inc. (PETM) announced that an investor group, BC Partners Limited, is set to acquire the pet retail giant for $8.3 billion.

PetSmart185PetSmart has had a lackluster year. Could this acquisition be a turning point?

PetSmart – Company Profile

PetSmart is a one-stop shop for pet lovers across the U.S. With more than 1,300 stores in the U.S., Canada and Puerto Rico, 26,000 full-time 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.

PetSmart – Buyout Buzz

On Sunday, PetSmart agreed to be bought by BC Partners for $8.3 billion, or $83 per share. Including debt, the total value of the buyout tops out at $8.7 billion, making it the largest take-private deal of the year.

PetSmart – Earnings Outlook

Despite the buyout buzz, PetSmart isn’t very optimistic about the future. For fiscal year 2014, PETM expects adjusted per share earnings between $4.39 and $4.43, translating to between 9.2% and 10.2% year-on-year bottom-line growth.

PetSmart also expects capital expenditures to be between $140 million to $150 million, below its previous estimate of capital expenditures between $150 million and $160 billion. PETM estimates that net sales growth to be in the low-single digits, while comparable store sales growth is expected to be flat.

PetSmart – Current Ratings 

Currently, PETM stock is a C-rated “hold” in Portfolio Grader. PetSmart has had a lackluster year, fluctuating between “sell” and “hold” ratings. For the past five months, PETM has remained in “hold” territory, which can be partly attributed to PetSmart’s mediocre buying pressure.

PETM receives a C for its Quantitative Grade. On the fundamentals side, PetSmart is doing decently, receiving A grades for cash flow and return on equity. PETM also earns Bs on earnings growth and analyst earnings revisions. The other four metrics are areas where PETM needs to improve: Operating margin growth, earnings growth and earnings momentum earn C grades, while sales growth earns a D grade. Overall, PetSmart receives a B for its Fundamental Grade.

As of this posting, Dec. 16, 2014, I consider PETM a C-rated “hold.”

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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