How Will PetSmart (PETM) Stock Respond To Jana Partners Pressure?

EW YORK (TheStreet) -- Shares of PetSmart, Inc.  (PETM) are up 0.77% to $67.80 as it's reported that the company is under pressure from hedge fund Jana Partners LLC to pursue strategic alternatives, and as it says it's reviewing changes to its capital structure, looking to return more money to shareholders, Bloomberg reports.

There is no assurance that the review will lead to any actions and the timing of potential changes is uncertain, the pet-supply retailer said in a filing today, Bloomberg added.

The fund also called on the company to improve disclosures and the composition of management and its board.

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TheStreet Ratings team rates PETSMART INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate PETSMART INC (PETM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, notable return on equity, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • PETM's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 1.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • PETSMART INC has improved earnings per share by 6.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PETSMART INC increased its bottom line by earning $4.03 versus $3.55 in the prior year. This year, the market expects an improvement in earnings ($4.34 versus $4.03).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market, PETSMART INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.47 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • You can view the full analysis from the report here: PETM Ratings Report

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