Raising the interest rate by 25 basis points, Fed has taken a step toward normalizing the monetary policy, and thus going by past history a market correction in inevitable in the near future. In such a scenario, we need to focus on value-intrinsic stocks that have strong fundamentals. Central Garden & Pet Company CENT is one such stock which has done exceedingly well in the past one year and is poised to maintain the momentum in 2016 as well. To date, the company shares have gained nearly 63% in 2015.
3 Concrete Factors Driving the Stock
Revamping of Pet and Garden Segments: Central Garden & Pet is restructuring its Pet and Garden segments to have a balanced approach that encompasses revenue growth as well as cost reduction. The company also intends to launch several products that appeal to customers, as well as upgrade its customer service. Management expects its ongoing transformation efforts to yield results in the near future. The company also intends to gain market share in the home centers, mass market, grocery, specialty pet store and other independent channels.
Impressive Earnings & Estimate Revisions: Central Garden & Pet posted strong fourth-quarter fiscal 2015 results, wherein both the top and the bottom line improved year over year and also exceeded expectations. Results were mainly driven by enhanced sales at the Pet segment. On delving deeper into the bottom-line details, we note that Central Garden & Pet’s earnings performance has been impressive over the last five quarters. Meanwhile, in the trailing four quarters, the company’s earnings outperformed the Zacks Consensus Estimate by an average of 50.4%. Following the stellar fourth-quarter fiscal 2015 performance, the Zacks Consensus Estimate for fiscal 2016 earnings has moved up by 15.9% over the past 30 days.
Favorable Valuation: Another reason why we suggest investing in this company is the stock’s Value Score of “A” and a Zacks Rank #1 (Strong Buy). The company possesses a P/B of 1.41x and P/S of 0.43x. Compared to the industry at large, this is pretty favorable as the overall space has an average P/B and P/S of 1.49x and 0.79x, respectively. Our research shows that stocks with a Style Score of “A” or “B” when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential. These are generally undervalued stocks, in spite of having strong fundamentals, and could fetch higher returns on market correction.
Other Stocks to Consider
Other stocks that warrant a look in the retail sector include Abercrombie & Fitch Co. ANF, American Eagle Outfitters, Inc. AEO and Foot Locker, Inc. FL. Abercrombie & Fitch and American Eagle Outfitters sport a Zacks Rank #1 (Strong Buy) whereas Foot Locker holds a Zacks Rank #2 (Buy).
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