CTAs are almost max long in equities, have very limited room to buy: UBS
On Tuesday, Citi analyst Steven Zaccone adjusted the price target for Petco Health & Wellness Co. Inc. (NASDAQ: WOOF), reducing it to $2.75 from the previous $5.00 while keeping a Neutral rating on the stock. The revision comes ahead of the company’s earnings report scheduled for March 26. Zaccone’s commentary highlighted several challenges facing the company, including weaker macroeconomic indicators and ongoing market share losses, which necessitate a revision of the 2025 financial estimates for Petco. InvestingPro analysis reveals concerning fundamentals, with a weak overall Financial Health Score and a debt-to-equity ratio of 2.66, indicating significant leverage. The company’s current ratio of 0.84 suggests potential liquidity challenges.
The analyst pointed out that while Chewy Inc . (NYSE: NYSE:CHWY), which holds a Buy rating from Citi, is also expected to report earnings on the same date, its outlook is slightly different. Chewy’s sales forecasts have been modestly decreased due to broader consumer weaknesses and subdued pet industry commentary from its peers. Furthermore, Chewy’s 2025 EBITDA estimates were adjusted to align more closely with the company’s incremental contribution target of around 15%, which is below the current market projection of roughly 20% for 2025.
Zaccone believes that resetting expectations for Chewy is a prudent move given the growing uncertainty in consumer behavior. Despite the lowered estimates, the analyst still sees potential for Chewy’s EBITDA to outperform in 2025, especially if the company decides to invest and gain market share during economic downturns, as it did in the fourth quarter of the previous year.
For Petco, the situation appears more challenging. The company is undergoing a comprehensive turnaround and, according to Zaccone, has significant work ahead. The lowered 2025 estimates for Petco reflect not just the impact of a weaker macroeconomic environment but also the company’s continued struggles with losing market share. Additionally, there is anticipation of a potential guidance reset from the new CFO, Simone Simmons, during her inaugural earnings call, which may further influence the company’s financial trajectory.
Investors and stakeholders of both Petco and Chewy are likely to closely monitor the upcoming earnings reports to gauge the companies’ performance and strategic responses to the current market conditions as outlined by Citi’s analysis. For deeper insights into Petco’s financial health and future prospects, InvestingPro subscribers can access comprehensive Pro Research Reports, which include detailed analysis of the company’s fundamentals, valuation metrics, and growth potential among 1,400+ top stocks.
In other recent news, Petco Health & Wellness Co. Inc. has undergone significant leadership changes, with the appointment of Sabrina Simmons as CFO and Michael Romanko as Chief Customer & Product Officer. These appointments complete the leadership team, which saw Glenn Murphy become Executive Chairman in May and Joel Anderson take over as CEO in July. Citi analyst Steven Zaccone maintained a Neutral rating on Petco, with a price target of $5, highlighting the leadership’s extensive retail experience as a potential advantage. Despite this, Zaccone expressed caution about the company’s turnaround, noting that it may not be straightforward. The analyst referenced a meeting with CEO Joel Anderson, where 2025 was identified as a crucial year for momentum and groundwork for 2026. The impact of these leadership changes will become more apparent when Petco reports its fourth-quarter earnings and provides guidance for 2025 in late March. As of now, no comments have been made by management regarding the fourth-quarter results or confirmation of prior guidance. Zaccone’s remarks suggest that while the leadership team is set to implement their strategies, the near-term outlook remains uncertain without additional financial updates from Petco.
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