Following robust first-quarter results,
PetSmart, Inc.
(
PETM
) has witnessed 21 upward revisions out of 22 estimates for the
current fiscal year. The specialty retailer of products, services
and solutions for pets became a Zacks #1 Rank (Strong Buy) on May
24, just two days after its earnings announcement.
Adding further momentum to the stock was the recent news of an 18%
hike in the quarterly dividend to 16.5 cents, and the announcement
of a new $525 million share buyback plan. All these positive
factors led shares of PetSmart to a new 52-week high of $69.82 on
June 19, before closing at $69.36. Shares are up approximately
38.1% so far this year.
Fabulous Quarter, Upbeat Guidance
On May 22, PetSmart posted first-quarter earnings of 85 cents per
share, surpassing the Zacks Consensus Estimate of 73 cents by
16.4%. The result also jumped 39% from prior-year earnings of 61
cents. Higher sales and cost containment efforts benefited the
quarter.
Total sales of $1,629.9 million handily beat the Zacks Consensus
Estimate of $1,599 million and rose 9.4% year over year, reflecting
sales increases across merchandise (up 9.5%) and service (up 8.3%).
Other revenue climbed 4.5% from the prior-year quarter. Operating
income surged 26.8% to $154.4 million, whereas operating margin
expanded 130 basis points to 9.5%.
The company's innovative and differentiated products, as well as
its sustained effort to expand its portfolio of brands and
assortments, led to the healthy results. PetSmart has collaborated
with Martha Stewart Living Omnimedia Inc. (
MSO
) to launch different lines of pet products.
Raised Guidance Leads to Growing Estimates
Buoyed by better-than-expected results, management raised its
fiscal 2012 earnings guidance to between $3.19 and $3.31 from the
earlier guidance of $3.02 to $3.16. For the second quarter,
earnings are projected between 61 cents and 65 cents per share.
PetSmart now envisions a fiscal 2012 total sales increase of 9% to
10%, which are 150 basis points above its earlier projection.
In the past 30 days, the Zacks Consensus Estimate for fiscal 2012
rose 5.1% to $3.29 per share on the back of upward revisions from
21 out of 22 estimates. The current estimate, which dovetails with
the higher end of the company's guidance range, implies
year-over-year growth of 29%.
For fiscal 2013, the Zacks Consensus Estimate is $3.66 per share,
exhibiting an increase of 4.9% in the last 30 days, aided by 20
upward revisions out of 22 estimates. The current estimate portrays
year-over-year growth of 11.2%.
Valuation Stretched, Yet Lucrative
PetSmart currently trades at a forward P/E of 21.1x, reflecting a
2.9% premium to the peer group average of 20.5x. Also, on a
price-to-book basis, shares trade at 6.9x, a 90.4% premium to the
peer group average of 3.6x. Given the company's compelling
fundamentals, the premium valuation is justified and well supported
by its long-term estimated EPS growth rate of 16.3%.
With respect to return on equity (ROE), the stock looks attractive.
It has a trailing 12-month ROE of 27.6%, which is substantially
above its peer group average of 17.4%. This implies that the
company reinvests its earnings more efficiently than its peer
group.
Strong Chart
Shares of PetSmart had been trading in the range of approximately
$50.00 to $59.00 between January 3 and May 22, 2012. It broke that
range on May 23 following its strong first-quarter 2012 results and
started inching closer to its 52-week high. In fact, the stock has
been consistently trading above its 200-day moving average since
October 10, 2011. It has also remained above the 50-day moving
average since May 23, 2012.
Volume is fairly strong, averaging roughly 1,216K daily. PetSmart
has outperformed the S&P 500 since April 12, 2012. The
year-to-date return for the stock is 38.1%, compared with the
S&P 500's return of 6.3%.
Founded in 1986 and based in Phoenix, Arizona, PetSmart offers
products, services, and solutions for pets. The company operates
over 1,241 pet stores in the United States, Canada, and Puerto
Rico, and more than 194 in-store PetSmart PetsHotel cat and dog
lodging amenities. The company is also one of the leading online
providers of pet supplies and information related to pet care.
PETSMART INC (PETM): Free Stock Analysis Report
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