Hedgeye CEO Keith McCullough is adding Petco Health and Wellness Company (WOOF) to the long side of Investing Ideas. Below is a brief note.
On the one hand, we're hearing about some hedge funds liquidating (firing) people and their positions...
On the other hand, I'm hearing (from McGough) to buy the damn dip in this stock.
Here's part of what Retail analyst Brian McGough wrote to his Retail Pro subscribers:
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Takeaway: The story is 100% on track. Street is underestimating TREND and TAIL EPS, cash flow, and de-levering. We build to $35 (+50%) in 12-18 mos. We think that WOOF should be bought on today’s selloff. Despite coming in 10% ahead of consensus, there was a ‘freak-out’ factor associated with the Gross Margin line, and a transitory pressure due to mix and freight pressure. The operative word there is transitory. The company is seeing an impact from strong sales in consumables due to the pet life cycle going from Year 1 (heavy supplies, little food) to Year 2 (low supplies, lots of food). Also keep in mind that as it scales its vet clinics the services personnel costs are booked in COGS as opposed to store labor, which is booked in SG&A. |
Buyem on red,
KM