- RBC Capital Markets initiated Petco Health and Wellness Company Inc (NASDAQ:WOOF) with an Outperform rating and a $17 price target.
- The analyst believes the company is well positioned to take a share of the fast-growing U.S. pet category with its revised company strategy, structurally advantaged real-estate portfolio, and vet expansion opportunity.
- Earnings are expected to compound with topline growth and see modest room for multiple expansions.
- Also read: Petco Health Disappoints With Smaller Than Expected Q2 Profits, Annual Guidance.
- Petco reshuffled its management and revised its go-forward strategy, attracting younger, higher-income consumers.
- The analysis of population demographics within 2, 5, and 10 miles of Petco and PetSmart stores showed that Petco stores are, on average, surrounded by more higher-income individuals.
- RBC estimates that opening 70 vet hospitals per year could result in a ~7% lift to total company net sales over five years (or 170 bps annually).
- Petco expects a four-wall hospital EBITDA margin at 5-year maturity to sit at around ~20%, well above current enterprise levels.
- Price Action: WOOF shares are up 5.21% at $15.26 on the last check Wednesday.
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