NEW YORK (TheStreet) -- Shares of PetSmart (PETM) are up 3.06% to $75.87 in pre-market trade after it was reported that buyout firms KKR & Co. (KKR) and Clayton, Dubilier & Rice have teamed up to take the company private for more than $7.5 billion, sources told Reuters, as the auction for the pet food retailer heats up.
KKR and CD&R are planning to submit a joint bid for PetSmart next month, sources added. Apollo Global Management (APO) and BC Partners are also separately considering offers, sources told Reuters.
A deal for PetSmart would represent the biggest leveraged buyout of the year. KKR's and CD&R's collaboration underscores the big size of the equity check involved in the deal, Reuters noted.
TheStreet Ratings team rates PETSMART INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate PETSMART INC (PETM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. 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 good cash flow from operations. 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 1.1%. Since the same quarter one year prior, revenues slightly increased by 1.4%. 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 10.1% 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.
- Net operating cash flow has slightly increased to $91.86 million or 5.84% when compared to the same quarter last year. Despite an increase in cash flow, PETSMART INC's cash flow growth rate is still lower than the industry average growth rate of 22.68%.
- You can view the full analysis from the report here: PETM Ratings Report