Petco Health & Wellness Co. (WOOF) has shifted its business away from bricks-and-mortar pet food retail and is now once again a publicly traded company poised for growth.
"The company is in the midst of a transformation under new CEO Ron Coughlin, developing a fully-integrated comprehensive pet care ecosystem to serve the 50% of pet parents who prefer a one-stop experience that cannot be matched by online-only competitors," wrote Wedbush analysts led by Seth Basham.
Wedbush notes that Petco was a private company for 14 years before trading began last month (https://www.marketwatch.com/story/petco-shares-soar-more-than-50-as-trading-begins-2021-01-14?mod=mw_quote_news).
Moreover, Petco has gone public after a surge of pet ownership during COVID-19, with adoptions increasing 4% in 2020, analysts say.
Read: Petco CEO highlights the resiliency of the pet industry as COVID-19 drives increase in adoption (https://www.marketwatch.com/story/petco-ceo-highlights-the-resiliency-of-the-pet-industry-as-covid-19-drives-increase-in-adoption-11610658883?mod=mw_quote_news)
(https://twitter.com/Petco/status/1358826398698340353)
Petco continues to enhance its online presence and is adding to the number pet care centers it operates.
"In our view, however, industry sales will continue to shift to the lower-margin online channel, with Petco having to accept these lower margins or risk losing more customers," Wedbush said.
A move to services could also put pressure on margins.
Wedbush rates Petco stock neutral with a $25 price target.
Well Fargo is more upbeat about the move that Petco has made to pet health and wellness, initiating shares at overweight in a note with the headline, "From Pet Peeve to Cat's Meow."
Wells Fargo has a $30 price target on Petco shares.
"Over the past three-to-four years, Petco has transformed its business from a traditional, underperforming bricks-and-mortar retailer (1,500 stores) with a commoditized pet food-heavy offering to a fully integrated, digitally focused provider of pet health and wellness products and services," wrote analysts led by Zachary Fadem.
Also:General Mills says economic troubles will drive at-home dining even after the pandemic is over (https://www.marketwatch.com/story/general-mills-says-economic-troubles-will-drive-at-home-dining-even-after-the-pandemic-is-over-11608222518)
"In the years ahead, we see strong secular growth, category defensiveness, and share opportunities via differentiation, digital, and vet/services."
UBS analysts forecast 100% digital sales growth for fiscal 2020.
"Admittedly, it's tough to fully parse out how much of its recent strength is attributable to underlying industry demand (accelerating pet adoption rates) vs. the success of Petco's differentiation efforts," wrote analysts led by Michael Lasser.
"The likely case is that it is benefiting from both. We think the category's momentum is likely to stick around until at least 2H'21 as COVID-19 lingers."
UBS rates Petco stock neutral with a $28 price target.
Don't miss: 'New normal' grows more likely as vaccine acceptance, stimulus spending increase: Stifel data (https://www.marketwatch.com/story/new-normal-grows-more-likely-as-vaccine-acceptance-stimulus-spending-increase-stifel-data-11612803888?mod=home-page)
Credit Suisse also initiates Petco with a neutral stock rating and $28 price target. Analysts there say repeat business and same-day delivery will be a plus for Petco.
Petco stock closed Monday at $26.74, up 1.5% for the day. Petco priced at $18.