RBC Capital Markets Initiates Coverage On This 'Well Positioned' Pet Company

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  • RBC Capital Markets initiated Petco Health and Wellness Company Inc WOOF with an Outperform rating and a $17 price target. 
  • The analyst believes the company is well positioned to take a share of the fast-growing U.S. pet category with its revised company strategy, structurally advantaged real-estate portfolio, and vet expansion opportunity. 
  • Earnings are expected to compound with topline growth and see modest room for multiple expansions.
  • Also read: Petco Health Disappoints With Smaller Than Expected Q2 Profits, Annual Guidance.
  • Petco reshuffled its management and revised its go-forward strategy, attracting younger, higher-income consumers. 
  • The analysis of population demographics within 2, 5, and 10 miles of Petco and PetSmart stores showed that Petco stores are, on average, surrounded by more higher-income individuals.
  • RBC estimates that opening 70 vet hospitals per year could result in a ~7% lift to total company net sales over five years (or 170 bps annually). 
  • Petco expects a four-wall hospital EBITDA margin at 5-year maturity to sit at around ~20%, well above current enterprise levels.
  • Price Action: WOOF shares are up 5.21% at $15.26 on the last check Wednesday.
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