Petco is an Attractive Buying Opportunity Here
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Pet products and services retailer Petco Health and Wellness Company (NASDAQ: WOOF) shares recently went public on Jan. 14, 2021, through an initial public offering (IPO). The stock is trading well below it’s $31.08 highs on IPO day, and is beginning to look tasty at these levels. As geographies get past the pandemic with accelerating COVID vaccinations, Petco is appearing more like a value stock with re-opening tailwinds, thanks to brick-and-mortar stores and veterinary services that require live physical engagement. The pandemic created a surge in pet ownership along with all the expenses and products needed to keep them healthy. Online pet care retailers like Chewy (NASDAQ: CHWY) were strong pandemic benefactors but may see sales migrate to brick and mortar players. Petco has over 1,500 physical stores providing pet care products along with grooming, veterinary and insurance services to over 21 million customers. COVID created over 3 million new pets in 2020 pushing the demand for premium products and services. Prudent investors seeking exposure can monitor for opportunistic pullback entry levels to consider building a position in shares of Petco.
Q1 Fiscal 2020 Earnings Release
On March 18, 2021, Petco released its Q4 2020 earnings report for the period ending December 2020. The Company reported earnings-per-share (EPS) of $0.17 versus $0.11 consensus analyst estimates for a $0.06 beat. Revenues grew 16.4% year-over-year (YoY) to $1.34 billion versus $1.31 billion consensus analyst estimates. Q4 comparable same-store sales grew for the ninth consecutive quarter rising 17% and net revenues grew 16% YoY.
Full-Year 2022 Upside Guidance
Petco raised its full-year 2022 EPS guidance to range between $0.63 to $0.66 versus $0.60 analyst estimates. The Company expects full-year 2022 revenues to come in between $5.25 billion to $5.35 billion versus $5.24 billion analyst estimates.
Conference Call Takeaways
Petco CEO, Ron Coughlin, set the tone, “We exited 2020 with momentum, delivering fourth-quarter revenue growth of 16% above our expectations, a 17% comparable-store sales or comp sales, 90% plus digital growth, almost a million new customers into the franchise and 13% adjusted EBITDA growth.” He noted how COVID provided strong tailwinds of “millions of new pets-oriented homes in the past 12 months” generating predictable annual spend for several years. CEO Coughlin noted how 50% of pet owners simply want a one-stop shop for their pet care needs, which plays to the core strength of the Company especially as it bolsters omnichannel engagement and transactions. The Company launched 400 more shipment store and curbside pickup locations.
The pandemic created more pet owners (over 3 million new pets in 2020) and Petco plans to open up to 70 new veterinary hospitals annually to meet the demand. Full-service locations offer grooming, training, and veterinary services generating 91% more sales than regular locations. Full-service locations are the strongest growth drivers indicating 50% YoY growth further bolstered by omni-channel going from four transactions to 23 annually. The Company owns PupBox, a Chewy-like competitor, that optimizes pet care supplies deliveries connecting customers to the Petco eco-system. The annual spend on pet care has been increasing 4% annually for years and expended to accelerate as analysts expect that figure to rise up to 7% driven by the migration to premium products. CEO Coughlin summed it up, “All-in-all, a pet has historically been a great high growth category to accelerate in 2020 from COVID tailwinds, and that creates an annuity for many years to come.”
WOOF Opportunistic Pullback Levels
Using the rifle charts on a weekly and daily time frame provides a precision view of the landscape for WOOF stock. Since shares started trading recently, the weekly rifle chart only displays a flat 5-period moving average (MA) at $21.61 for now. Upon the IPO, shares immediately topped out at the #1.03 Fibonacci (fib) level and proceeded to sell-off for seven straight weeks before making a highs weekly candle low to form a market structure low (MSL) buy trigger above $23.56. The daily rifle chart formed another downtrend as the daily stochastic peaked at the 80-band and crossed back down for another oscillation down towards the 20-band. The daily 5-period MA resistance sits at the $21.77 and 15-period MA at $22.33. If the daily stochastic continues its oscillation down, then the daily lower Bollinger Bands (BBs) are targeted at $19.37. A daily MSL triggers above the $21.82 but it’s hard to fight the bearish daily stochastic. Prudent investors can monitor for opportunistic pullback levels are at the $20.55 fib, $19.60 fib, $18.69 fib, $17 fib, and the $15.66 fib. Keep an eye on peer CHWY. Upside trajectories range from $25.07 to the $32.72 fib are