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Central Garden & Pet Company's (CENT) stock continues to meander, but I'm reiterating my buy rating for the shares, first recommended on June 22, 2009 at a price of $10.16. Here's why: Central posted Q3 EPS of 12 cents, in-line with the First Call Q3 EPS estimate of 12 cents, and that's good enough to keep the company's recovery narrative in-place. Namely -- 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) will likely benefit from the ongoing rebound in the U.S. housing sector, but don't look for a return to housing bubble-era revenue growth rates. Another positive: CENT is a large supplier of pet and garden supplies to Home Depot (HD), Lowe's (LOW) and PetSmart (PETM). The First Call FY2010/FY2011 EPS estimates for CENT are $1.08 to $1.18.
Technically, Central Garden's stock chart displays an over-correction -- a bearish pattern -- and the stock came dangerously loss to the $6.25 Sell/Stop Loss earlier this fall. Had the stock remained below its 50-day moving average, the position would have been closed. But CENT recovered, and the calculation here is that the selling was primarily year-end profit-taking by short-term institutional investors (IIs).
However, due to CENT's swoon, it's now a high-risk stock, a demotion from the moderate-risk stock category. Don't buy CENT if you can not tolerate a 50% loss in your position's value.
Stock Analysis: Central Garden & Pet Company is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CENT now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CENT position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $6.25.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
Technically, Central Garden's stock chart displays an over-correction -- a bearish pattern -- and the stock came dangerously loss to the $6.25 Sell/Stop Loss earlier this fall. Had the stock remained below its 50-day moving average, the position would have been closed. But CENT recovered, and the calculation here is that the selling was primarily year-end profit-taking by short-term institutional investors (IIs).
However, due to CENT's swoon, it's now a high-risk stock, a demotion from the moderate-risk stock category. Don't buy CENT if you can not tolerate a 50% loss in your position's value.
Stock Analysis: Central Garden & Pet Company is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CENT now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CENT position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $6.25.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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