Credit Suisse On PetSmart: Strategic Sale Could Fetch $80 Per Share

With two major investors now clamoring for a sale of PetSmart PETM and the company reviewing its capital structure, an analyst Tuesday suggested a strategic sale could fetch $80 a share.

Seth Sigman of Credit Suisse cautioned, however, that anti-trust concerns may prove to be a stumbling block to any such would-be acquirers.

On Monday, nine percent stakeholder Longview Asset Management asked the company to consider a potential sale or other strategic alternatives. The move comes on the heels of a similar request from activist investor Barry Rosenstein's Jana Partners, which last week disclosed a 9.9 percent stake.

Regarding other alternatives, a leveraged buyout is "mathematically doable," but at a lower premium to shareholders, Sigman said.

If instead PetSmart seeks to jump-start growth by acquiring competitors in the online or specialty chain segments, investors may balk until such strategy is proven successful

Among the "more likely scenarios," Sigman said, is a so-called financial engineering aimed at boosting dividends which would "modestly" improve PetSmart's share price.

To achieve this, PetSmart could plausibly borrow up to $1.3 billion for the payouts. Alternately, PetSmart could shift its payout of $500 million in annual cash flow from a current plan which devotes 80 percent to buybacks and 20 percent to dividends, to a heavier emphasis on dividends.

"Something is changing competitively" for PetSmart, Sigman said in the note. "Additional moves may be necessary."

Sigman is Neutral on PetSmart with a $65 price target.

The company traded recently at $69.16, up 0.3 percent.