NEW YORK (TheStreet) -- Shares of PetSmart (PETM) are surging, higher by 4.87% to $81.45 in pre-market trading Monday, after the specialty pet products chain agreed to be acquired by a consortium led by London-based private equity firm BC Partners for $8.7 billion, or $83 per share in cash.
The $83 per share BC Partners will pay represents a 6.86% premium over PetSmart's closing price on Friday.
In July, activist investor Jana Partners started to push for a sale of the company after disclosing a 9.9% stake. Jana paid less than $55 per share for its percent stake, according to regulatory filings, CNBC reports.
Phoenix-based PetSmart, which operates about 1,387 pet stores in the U.S., Canada and Puerto Rico, said in August that it would explore a potential sale of the company.
Separately, 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, reasonable valuation levels, good cash flow from operations, growth in earnings per share and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 2.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has increased to $125.35 million or 16.88% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -22.10%.
- PETSMART INC's earnings per share improvement from the most recent quarter was slightly positive. 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 ($4.42 versus $4.03).
- The current debt-to-equity ratio, 0.42, 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 0.40 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