NEW YORK (AP) ¿ Shares of Central Garden & Pet Co. advanced Wednesday after an analyst upgraded the stock to "Buy" from "Neutral," noting that the company appears to have "finally turned the corner" in overcoming high commodity costs and challenges related to weather.
SunTrust Robinson Humphrey analyst William Chappell hiked his rating for the garden and pet products company, citing lower grain costs for bird seed products and fewer droughts that have hampered the company's grass seed and pesticide line in recent years.
Bird seed primarily consists of grain. But, as demand for ethanol pushed grain commodity prices higher from 2006 to 2008, Central couldn't pass off price increases fast enough to keep up with rising costs, he wrote.Now, "it appears that the worst is behind the company in terms of commodity headwinds," Chappell wrote. Central's garden business should also benefit from a lack of severe droughts in the southeastern and southwestern United States. In the past few years, water shortages in those regions led officials to impose widespread watering restrictions, which curtailed gardening activities. "Why plant grass seed if you can't water it?" Chappell wrote. The company could also see a boost from the growing "staycation" trend, in which consumers spend more time and money around the home, and from management's efforts to cut costs, he wrote. Walnut Creek, Calif.-based Central shares rose 85 cents, or 8.8 percent, to $10.51 in afternoon trading.