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Central Garden & Pet Co (NASDAQ:CENT), a producer and distributor of lawn, garden and pet supply products, boasts a strong product portfolio with substantial market share in niche categories, according to BMO Capital Markets.
The Analyst
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BMO's Shannon Coyne initiated coverage of Central Garden & Pet with an Outperform rating and $45 price target.
The Thesis
The bullish case for Central Garden & Pet's stock is sevenfold, Coyne said in the initiation note. (See the analyst's track record here.)
The analyst said the following factors support BMO's stance on the stock:
- Management has a favorable reputation of M&A deals and the company is now in a "sweet spot" where small deals can generate a "material impact" to sales and earnings.
- The company has plenty of room for growth in the $19-billion garden market, where it holds a 3-percent market share. The larger pet segment is a $28-billion market and the company has a 2-percent market share.
- Various products in niche product categories like wild bird feed and chew toys for dogs should gain market share.
- Central Garden & Pet has a "continuous improvement mindset" with the objective of removing 1-2 percent of costs per year, which fuels profitability and funds organic growth initiatives.
- The company has a strong financial track record, including an industry-leading free cash flow conversion rate of over 150 percent on average in the past three years.
- The management team is stacked with leaders from various consumer packaged goods companies and complemented with entrepreneurs who boast complementary outside experience.
- The pet category and pest control segments have large pricing power, which gives some of the company's private label business a competitive advantage.
Price Action
Central Garden & Pet shares were trading up 1.35 percent to $40.49 at the time of publication Monday.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.