On Wednesday, RBC Capital Markets updated its outlook on shares of Petco Health & Wellness Co. Inc. (NASDAQ: WOOF), increasing the stock's price target to $3.50 from $3.00, while reaffirming an Outperform rating. The firm noted that, despite challenges in the pet industry, there are indications of a turnaround, and Petco appears to be making significant strides in reducing costs.
RBC Capital's assessment highlighted the potential impact of new leadership at Petco, which could accelerate cost-saving measures and refine growth strategies. The firm's revised forecasts for the company's comparable sales growth are now set at 0.4% for fiscal year 2024 and 2.7% for fiscal year 2025, a slight decrease from previous estimates of 0.7% and 3.2%, respectively.
The firm also adjusted its projections for Petco's adjusted EBITDA, raising the estimates to $329 million for fiscal year 2024 and $383 million for fiscal year 2025, up from the prior forecast of $330 million and $372 million. The new price target of $3.50 is based on approximately 6.3 times the updated fiscal year 2025 adjusted EBITDA estimate.
The analyst from RBC Capital expressed a cautious optimism regarding the company's trajectory, suggesting that the bottom of the market trend may have been reached and that Petco is on a path to recovery. The adjustments in the financial estimates reflect a nuanced view of the company's potential performance in the coming years.
Investors and market watchers will likely monitor Petco's progress closely, particularly in the light of the new price target and the anticipated influence of leadership changes on the company's financial health.
In other recent news, Petco Health and Wellness Company, Inc. reported its second quarter earnings, with results surpassing analyst expectations. The company posted adjusted earnings per share of $0.06, notably higher than the analyst estimate of a $0.02 loss. Revenue aligned with consensus forecasts, coming in at $1.52 billion.
Looking forward, Petco expects Q3 earnings per share to lie between -$0.03 and -$0.04, with revenue guidance of $1.5 billion. These figures slightly miss the analyst consensus of -$0.03 and $1.51 billion, respectively.
In terms of sales, the company reported a 0.3% year-on-year increase in Q2 and a two-year rise of 3.5%. The consumables business grew 1.5% year-on-year, and services and other revenue increased 3.1%. However, these gains were offset by a 4.7% decline in supplies and companion animal sales.
Despite these developments, Petco maintains its full-year outlook for capital expenditures of around $140 million and net interest expense of approximately $145 million.
InvestingPro Insights
In light of RBC Capital Markets' updated outlook on Petco Health & Wellness Co. Inc. (NASDAQ: WOOF), examining real-time data from InvestingPro can provide additional context to their analysis. The company is currently grappling with significant debt and short-term obligations that outstrip its liquid assets, as indicated by InvestingPro Tips. These factors underscore the challenges Petco faces, despite the potential for a turnaround.
InvestingPro Data reveals a market capitalization of $838.09 million, suggesting a moderate size within its sector. The negative P/E ratio of -0.61 and an adjusted P/E ratio for the last twelve months as of Q1 2025 at -2.63 highlight the company's current lack of profitability, aligning with analysts' expectations of Petco not being profitable this year.
However, a strong return over the last month, with a price total return of 31.76%, indicates some investor confidence in the company's potential for recovery. Additionally, the stock's price volatility is something investors should be mindful of, as it can significantly impact investment returns.
For those seeking a more comprehensive analysis, there are additional InvestingPro Tips available that delve further into Petco's financial health and market performance. Understanding the full scope of these metrics and tips can be pivotal for making informed investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.