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On Thursday, Morgan Stanley (NYSE:MS) analysts made adjustments to their outlook on PetMed Express (NASDAQ:PETS) shares, reducing the price target from $3.50 to $3.20. Currently trading at $3.04 and near its 52-week low of $2.90, InvestingPro analysis indicates the stock is undervalued, with technical indicators suggesting oversold conditions. Despite acknowledging the company’s strong position in a market with robust demand for pet health products, the firm maintained its Underweight rating on the stock.
The analysts highlighted that PetMed Express is well-positioned to benefit from the favorable demand in pet health and shifts in consumer behavior towards mail-order pharmacy services. With a solid balance sheet showing more cash than debt and a healthy gross margin of 27.68%, the company maintains financial stability. However, they also pointed out that the company is expected to continue facing significant challenges due to the intensifying competition in the sector.
Regarding the company’s leadership, the analysts at Morgan Stanley expressed optimism about the potential for improvement under new management. Nonetheless, they are awaiting further details on the new management’s strategic plans and their execution before reassessing their stance.
In terms of financial performance, Morgan Stanley anticipates that PetMed Express will achieve long-term earnings growth in the low- to mid-single digits. This forecast is based on an expectation of similar revenue growth and only a slight expansion in profit margins. The analysts’ commentary suggests a cautious outlook for the company’s ability to significantly increase its profitability in the competitive landscape it operates within.
In other recent news, PetMed Express reported third-quarter earnings that did not meet Wall Street expectations, with earnings per share at ($0.03), falling short of the projected ($0.01). The company’s revenue was $53 million, significantly below the anticipated $65 million. Despite these setbacks, PetMed Express managed to improve its gross margin rate by 80 basis points to 28.1% and increased its adjusted EBITDA to $2.0 million from $0.9 million year-over-year. The company has been actively working on a transformation strategy, including leadership changes and operational improvements, to drive long-term shareholder value.
Additionally, the company has been undergoing significant board changes, with the appointment of Peter Batushansky as an independent director, while Dr. Gian Fulgoni plans to retire. The leadership team, including CEO Sandra Campos, continues to focus on enhancing customer experience and operational efficiency. Analysts, such as Ryan Meyers from Lake Street, remain cautious, reiterating a Hold rating due to ongoing competitive pressures and lack of organic growth. PetMed Express is also targeting younger demographics and higher-income households as part of its strategic initiatives. The company is investing in digital enhancements and marketing strategies to improve customer acquisition and retention.
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