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Investing.com -- Barclays (LON:BARC) has downgraded Pets at Home (LON:PETSP) to Underweight from Equal Weight, flagging persistent headwinds in its retail business that outweigh the strength of its veterinary division.
The stock fell more than 4% in London trading.
The price target was also lowered to 190 pence from 285 pence, reflecting an 8% cut to earnings forecasts for the full-year 2026 (FY26) and a reduced price-to-earnings (P/E) multiple of 11x from 15x.
The broker acknowledged the growth potential in the Vet Group, forecasting an 8% CAGR in revenue and pre-tax profit from FY25 to FY28.
However, concerns over the retail unit have intensified following a disappointing Q1 update, where like-for-like sales declined 3%.
Barclays said this result "implies underperformance vs the wider market" and cut its FY26 group profit before tax (PBT) forecast by £10 million to the lower end of the company’s revised £110–120 million guidance range.
One of Barclays’ central concerns is that “retail headwinds more than offset Vet Group attractions,” with FY26 retail PBT now forecast to fall by about 32% versus FY25.
Although Pets at Home has taken steps to manage external cost pressures, “further savings may be more challenging to achieve, and margins are already low,” analyst Richard Taylor said.
Taylor also questioned the validity of sum-of-the-parts valuations due to high co-location of retail and vet sites, estimating that 71% of Vet Group practices operate within retail units.
“Unless the market recovers, or unless market share gains improve, we believe sum of the parts arguments are optimistic.”
Also, in addition to sector competition from supermarkets, Amazon (NASDAQ:AMZN), and online retailers such as Zooplus, Barclays noted that weak consumer spending in the U.K. could weigh further on sales.
Potential upside for the stock could be unlocked if Pets at Home can boost average customer value and subscription growth, which could improve sentiment around the retail division’s long-term profitability.
A better macro environment and improved perceptions of retail earnings could also support valuation arguments.
The next potential catalyst for the stock will be the H1 2026 results, expected on 26 November, Taylor said.