Pets at Home Group PLC (LON:PETS) appeared as one the preferred stocks in the animal health sector for analysts at Liberum, who upped their price target for the company to 330p from 275p and retained their ‘buy’ rating in a note on Monday.
“[Pets at Home’s] impressive turnaround strategy was driving very strong momentum prior to [coronavirus], and it looks set to support a rapid recovery post the lockdown”, the broker said, adding that the company’s strategic initiatives were continuing to evolve its offering, making it “even more relevant to customers and growing its leading market shares”.
Liberum also said the company has “plenty more levers to pull to improve customer cross-shop yo drive higher spend”, estimating an incremental revenue pool of GBP2.5bn that the firm could reach though the 5.7mln users of its VIP loyalty scheme.
Meanwhile, Liberum also initiated veterinary services firm CVS Group PLC (LON:CVSG) at ‘hold’ with a price target of 1,274p, saying the company was “set to deliver a 15% [earnings per share compound annual growth rate] to 2025 and deleverage its balance sheet”, which was comfortably reflected in the current share price and thus limiting upside.
The broker said an “acceleration in organic growth” in the company’s practices division alongside a maturation of newer business should drive earnings growth over the next five years , adding that CVS could “replicate the prior 5 year 150% EPS growth it delivered in the coming 5 years but do so with lower risk while also improving returns and reducing leverage”.
Finally, Liberum’s analysts were less optimistic about vet pharma firm Dechra Pharmaceuticals PLC (LON:DPH), which was initiated at ‘sell’ with a 2,740p target price due to what the broker said was an “unfavourable risk and reward” profile.
“Dechra has a long track record of delivering exceptional double-digit sales and earnings growth. The company has broadened its portfolio and geographic reach. However, the strategic emphasis is shifting towards greater innovation in response to a more price-competitive market, with higher [research & development] spend in the near term”, Liberum said.
The broker added that the company’s near-term earnings growth “will slow as R&D costs ramp-up, but valuation implies this investment will deliver in the long term”.
“The balance of risk and reward is unfavourable”, Liberum said, and that the “substantial near-term investment” required by the R&D pivot has increased “uncertainty around future growth”.
Shares in Pets at Home were up 4.9% at 295.8p in late-morning trading, while Dechra rose 0.3% to 3,144.7p and CVS was down 1.2% at 1,190p.