Goldman Sachs Finds PetSmart’s Long-Term Appeal "Considerable"

Buckle down, focus and avoid distractions. Advice that might be useful for someone trying to train a new puppy may also be appropriate for the giant retailer of all things pet-related, PetSmart Inc. (PETM).

The company is upgrading its warehouse management system, it is executing a large acquisition in Canada, it is making accounting changes related to the ownership of its in-store veterinary hospitals, it is moving on from last year’s aborted merger talks with Petco Animal Supplies, and last but not least, PetSmart is still dealing with a painful pet food recall that remains fresh in people’s minds.

Given all that, “the company’s appetite for change and disruption is slim, increasing the likelihood of a more stable year in 2008,” Goldman Sachs analyst Matthew Fassler said in a note to clients.

This came after the company’s analyst meeting, where it lowered its near-term earnings guidance, but boosted several of its longer-term goals.

“PetSmart’s long-term appeal is considerable, given its niche, services business, and ongoing growth trajectory,” he added, reiterating a US$34 price target on the stock. Mr. Fassler also reduced his earnings estimates for 2007 and 2008.

With a new CFO in place and fewer distractions from non-core initiatives, the analyst is confident PetSmart can achieve its earnings growth goal of 15% to 20%. But the firm will likely have to make it through one or two more quarters of challenges.

Until then, PetSmart should heed the advice of dog trainers everywhere and “sit” and “stay.”

PETM 1-yr chart: