UPDATE: Bank Of America Upgrades PetSmart

Following the company’s financial results, Bank of America upgraded shares of PetSmart, Inc. PETM from Underperform to Neutral and raised the price target from $55 to $80.

Analysts feel that the announced cost saving plan to reduce costs by $200 million through 2016 can potentially deliver double-digit earnings growth even if comparable store sales remain challenging.

In addition, the company raised its 2014 FY operating EPS guidance.

Lastly, analyst Denise Chai now sees PetSmart as a more attractive takeover candidate.

“Targeted cost-savings could increase PETM’s attractiveness to potential bidders, but as we have discussed we still think a combination with Petco makes the most sense. Moreover, recent media reports have stated that banks would be willing to finance a proposed deal of around $8.5bn ($85/share), or about 8x EV/EBITDA giving full credit for the $200mn cost savings.”

Shares of PetSmart recently traded at $76.40, up 3.7 percent.

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Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsBank of AmericaDenise Chai
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