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Central Garden & Pet Hits 52-Week High: More Room to Run?

HD LOW CENT WMT

Trades from $3

Shares of Central Garden & Pet Company (CENT - Free Report) hit 52-week high of $38.68 yesterday, though it closed a tad lower at $38.40. This upside came on the back of the company’s strategic moves and stellar earnings history. Evidently, the company's earnings have outpaced the Zacks Consensus Estimate for ten straight quarters now.

In fact, the stock displayed a bullish run on the index, and outpaced both the industry and the broader sector in the past one year. The stock soared nearly 145%, while the Zacks categorized Consumer Products – Miscellaneous Discretionary industry gained 4.5%. Further, the Consumer Discretionary sector, which occupies space in top 50% of the Zacks categorized sectors, rallied 13.5% over the same time frame. Additionally, it boasts a VGM Score of “B”, with a long-term earnings growth rate of 10%, which highlights the stock’s momentum.



Let’s Take a Deep Look

Central Garden & Pet is revamping both its Pet and Garden segments. The company intends to have a balanced approach that encompasses improvement in revenues and profits through operational efficiency and cost reduction. Also, it is aimed at launching several products, along with upgrading its customer service. Management expects the ongoing transformation efforts to yield results in the near future. Further, the company strives to gain market share in the home centers, mass market, grocery, specialty pet store and other independent channels.

Being the leading producer of garden and pet supplies in the U.S and armed with a diversified portfolio of brands, the company has developed healthy commercial relationships with giant retailers like Wal-Mart Stores, Inc. (WMT - Free Report) , The Home Depot, Inc. (HD - Free Report) and Lowe's Companies, Inc. (LOW - Free Report) . Moving ahead, Central Garden & Pet intends to evolve into an integrated, multi-brand company from a portfolio of a stand-alone businesses, by restructuring and reorganizing operating units, and consolidating facilities. These factors, along with effective inventory management, are expected to drive growth.

Notably, Central Garden & Pet delivered an outstanding earnings surprise of 300% in first-quarter fiscal 2017. In the said quarter, earnings were driven by acquisitions, favorable timing of revenues and effective cost management. Also, its sales grew year over year and outdid the Zacks Consensus Estimate, supported by the recent acquisitions, increase in market share of Pet segment, and promising end to the Fall garden season. In fact, the company’s top line surpassed our estimate in six of the trailing seven quarters. The company also posted a remarkable average earnings surprise of 120.5% in the past four quarters.

However, stiff competition and decline in consumers’ discretionary spending might weigh upon the company’s results. In addition, seasonality of garden business remains a concern.

Nonetheless, we believe that these headwinds will be efficiently overcome by Central Garden & Pet’s strategies, making it an investors’ favorite. Moreover, organic growth, value accretive acquisitions and divestment of non-strategic assets have been the company’s growth drivers. Also, estimates remained unchanged ahead of the second-quarter earnings release. The Zacks Consensus Estimate for the second quarter and fiscal 2017 are currently pegged at 64 cents and $1.39, respectively.

Currently, Central Garden & Pet has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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