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Central Garden & Pet (CENT)

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Central Garden & Pet Company (CENT) continued its loss momentum during the first quarter of 2011. Despite a 4.6% increase in the top-line, the company delivered a quarterly loss of $0.16 per share, which was broader than the Zacks Consensus Estimate loss of $0.10 and the prior-year quarter's loss of $0.04.

It is to be noted that the company has historically reported losses in its first quarter due to the cyclic nature of the lawn and garden category. The company also witnessed a 5.4% drop in the gross profit with gross margin contracting 310 basis points primarily due to rising commodity prices along with the change in the product mix.

Central Garden & Pet is trading at a discount to its peer group, based on forward earnings estimates. We have a long-term Underperform recommendation on the stock. Our target price of $8.25, 9.5X 2011 EPS, reflects this view.

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