Central Garden & Pet: Pull-back is a buy opportunity

Posted Oct 12th 2009 9:30AM by Joseph Lazzaro
Filed under: Stocks to Buy

I'm Reiterating my Buy rating for Central Garden & Pet Company (NASDAQ: CENT), first recommended on June 22, 2009 at a price of $10.16.

Central's stock has re-trenched to about $12 after breaking out to the upside above $14 this summer. For now, the narrative remains the same -- that CENT, which receives about 50% of its revenue from pet products/care, will not suffer the fate of other retail plays, under the thesis that the now 'frugal consumer' Americans will give up a lot before giving up their pets.

Meanwhile, CENT's lawn & garden division (47% of revenue) is still awaiting the rebound in housing, and is also highly seasonal: that may account for the late summer sell-off. However, a severe underperformance for its fiscal Q4 (summer season), may result in a re-evaluation of the Buy recommendation: the First Call Q3 EPS consensus estimate is 12 cents. Also, the First Call FY2009/FY2010 EPS estimates for CENT are 94 cents to $1.05.

For now, the calculation is that the current pull-back represents a Buy opportunity.

Stock Analysis: Central Garden & Pet Company is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CENT now. Under any circumstance, don't buy more than 50% of your CENT position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $6.25.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: CENT, Central Garden, gardening stocks, GardeningStocks, inthenews, pet stocks, PetStocks