Petco Health+Wellness Is Good For Your Portfolio

Omnichannel Petco Health+Wellness Is Ready To Reverse 

Competition or not, Petco Health+Wellness NASDAQ: WOOF is well-positioned within the growing pet care industry and shares of its stock are ready to move higher. The stock has been in a downtrend driven by the combination of waning analysts sentiment and a rising short interest but that move is played. The Q4 results and outlook for 2022 prove the analysts were too pessimistic, the company’s moat too deep, for competition or economic headwinds to curb its growth. In fact, the company is not only exceeding the expectations but guiding the coming year higher and in a way that we see driving the stock higher. As for the analysts, their sentiment waned a bit over the last quarter or so but they are still Holding the stock and see it trading about 25% higher than the recent price action near $19. 

Petco Health+Wellness Company Beats And Raises Guidance 

Petco Heatlh+Wellness Company had a robust quarter in which double-digit YOY growth was maintained for the 7th consecutive quarter. The only bad news is that growth is slowing and the comps are going to get tougher and tougher. Regardless, the $1.51 billion in net revenue is up 12.7% over last year and beat the Marketbeat.com consensus by 200 basis points. Revenue is driven by a strong 14% comp, 30% in the two-year stack, with margins widening as well. The company was able to leverage both scale and volume to produce a 65% increase in adjusted earnings and beat the consensus estimates at that level as well. The bottom line results of $0.28 are up from last year’s $0.17 and beat the consensus by a nickel. 

Looking forward, the company is expecting the momentum to carry into the current year and is guiding fiscal 2022 for growth above the consensus. The ranges for both revenue and earnings are well above the analyst's consensus and we see upside risk in the numbers. With pet ownership widening and money spent per pet on the rise, there is a secular tailwind in place. The biggest downside risk is inflation, however, and it may curb some discretionary spending. Gasoline prices are at record levels and will surely cut into consumer spending. 

"We enter this fiscal year as a stronger company than ever. Our category remains strong and resilient; our competitive moats are deepening, and our world-class team is executing to deliver purpose-driven performance. With an integrated omnichannel infrastructure, robust services offering including 197 veterinary hospitals, and millions of net new customers, we're well-positioned to drive enhanced long-term shareholder value," said Ron Coughlin, Chairman, and CEO of Petco.

Institutional Buying Supports Petco Health+Wellness Share Price 

The institutions have been aggressive buyers of Petco Health+Wellness Company ever since the IPO. The institutions have purchased a neat 65% of the shares in that time and their buying activity is not slowing. Institutional activity in the first 8 weeks of the New Year is worth about 3.0% of the market cap alone and we think will end the quarter much higher. 

Turning to the chart, shares of Woof have been in a downtrend since late in 2021 but appear to be forming a bottom. Major support is at the $17.83 level and the 30-day moving average is above it as is price action. Price action is now moving higher from support at $17.83 and indicated higher by both the MACD and stochastic. Assuming the market follows through on this move, we see a retest of resistance at the $20 level within the next few weeks and then, possibly, a move up to higher levels.