Blue Buffalo Is Attractive Because Of Growth, Moat And Margins...So Buy It: Citi

In a report published Monday, Citi analyst David Driscoll initiated coverage of

with a Buy rating and a price target of $33. Analyst David Driscoll said that Blue was a leading player in the pet food market's wholesome natural segment which had grown at a 20 percent 3-year CAGR to $4.4B, backed by "health and wellness" human food trends and pet humanization. The company's strengths lay in its strong brand positioning and ability to tap into a shift in consumer preferences, enabling it to capture a 6 percent share of the pet food market and a 34 percent share of the wholesome natural segment. In the report Citi noted, "Blue is a growth story at its core, and we believe Blue can achieve double digit revenue growth and high-teens EPS growth over the next several years driven by continued natural pet food category growth and further share gains." Driscoll expects the wholesome natural segment to grow at a 10-15 percent CAGR over the next six years, while the segment's retail sales were expected to expand from $4.4 billion in 2014 to $8-$10 billion in 2020. "Blue is over indexed to puppies/kittens with a 7% market share of younger pets, compared to total 6% share. As such, given low switching behavior, Blue has a clear runway of built in share gains & revenue growth over the next several years as these pets age," the report mentioned. Driscoll stated that Blue seemed to be an "attractive investment," in view of the "appealing fundamentals of the pet food category," the company's "competitively advantaged" business model and a number of growth opportunities "over the next several years."