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Central Garden & Pet (CENT)

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Central Garden & Pet Company's (CENT) third-quarter 2012 earnings of $0.47 per share came in line with the Zacks Consensus Estimate, and rose 51.6% from the prior-year quarter on the back of increased marketing efforts, brand-building initiatives, and product innovation that helped drive consumer demand. Total revenue rose 10% to $533.8 million, and beat the Zacks Consensus Estimate of $506 million.

Central Garden & Pet intends to transform itself into an integrated, multi-brand company. Going forward, the company's primary focus is to contain costs, improve operating efficiencies and augment revenue growth potentiality. Gross margin expanded 300 basis points to 33.8%, whereas operating margin increased 160 basis points to 9.2% during the quarter.

The stock is trading at a premium to the industry average based on our forward fiscal 2012 earnings estimate, but at a discount based on forward fiscal 2013. Our target price of $11.00, 19.0X 2012 EPS, reflects this our recommendation upgrade from Neutral to Outperform.

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