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Pet-Love and Adoption Trends Likely to Stay: 5 Stocks to Watch

Amid the pandemic-led glooms last year, pets brought solace almost to every U.S. household. People are said to have received more emotional support from their pets than their spouses or kids. Since then, the humanization of pets is rapidly taking place, with pets becoming a member of the family. And because of this animal-human bond, pet ownerships have surged with increased willingness to spend lavishly on pets. So much so that, shelters are running empty and foster organizations are finding it difficult to keep pace with the growing demand. Also, veterinarians are now booking appointments months in advance.

Consequently, the U.S. pet population witnessed high-single-digit growth last year. Notably, roughly 12.6 million U.S. households adopted a pet in 2020, per a COVID-19 Pulse Study by the American Pet Products Association. Driven by these factors, the U.S. pet industry raked in more than $100 billion in sales for the first time ever.

The advent of online purchasing has also made its way into the pet space, long before the pandemic. Notably, the pet food industry was already basking in the sun before the pandemic with e-commerce growth of 53% year over year. Also, sales of non-food pet supplies in 2019 came in at more than $5 billion, with e-commerce representing almost 21% of product sales.

Nonetheless, COVID-19 fast-tracked the shift to e-commerce by at least five years. People are now also buying pet foods and other pet products online. Notably, pet food and other pet supplies accounted for roughly 10% of e-commerce sales in 2020 and are expected to achieve $15.5 billion by 2025, per IBISWorld. Even with the vaccination program accelerating across the United States, the e-commerce trend is likely to continue, as consumers are now enjoying the ease and convenience of online ordering.

Pet Care Industry: A Bright Spot

The good thing about pets is that they help you strike a healthy work-life balance and increase productivity. Also, experts believe that once you get a pet, you tend to keep it. Then you need pet food, toys and other accessories. This becomes a source of recurring revenues for pet retailers. Additionally, consumers are now increasingly devoted to their pets and want to treat them better with the best possible care. With increased focus on pet wellness and nutrition at an all-time high, higher spending on quality products, be it food, treats or pet medication, is spurring the growth in the pet care space. Retail giants like Amazon AMZN and Walmart WMT are leaving no stone unturned to cash in on this flourishing space by expanding their online presence in the pet care market.

In 2020, pet care sales grew 8.7%, with pet food, accessories, beauty and grooming categories recording sales growth of 8.1%, 10.3% and 11.3%, respectively, on the back of the pandemic-led surge in demand. The pet care industry is envisioned to grow 5.8% in 2021, up from the historical average of 3-4%.

Key Beneficiaries

The pet industry is going through a massive change, stemming from higher consumer spending, changing consumer behaviors and attitudes, and a surge in the demand for premium pet food products and services. Here we explore five companies, which are likely to continue their impressive run in the pet care space.

Spectrum Brands SPB has been gaining from growth in aquatic and companion animal categories, driven by its newly acquired Omega Sea, which is now part of its Global Pet Care portfolio of aquatic brands. Moreover, it is making efforts to strengthen its leadership in the dog chews category via the acquisition of Armitage Pet Care. This move will help it expand the chews business, as Armitage is a well-known grocery brand in the U.K. and offers products such as dog chews, cat chews, treats and toys. Cumulatively, the company’s pet segment remains poised for growth in 2021, backed by its pipeline of robust innovation and growth strategy.

The stock has a trailing four-quarter earnings surprise of 83.1%, on average. Moreover, the Zacks Consensus Estimate for its fiscal 2021 sales and earnings suggests growth of 15.3% and 54.2%, respectively, year over year. The consensus mark for fiscal 2021 earnings has increased 4% in the past 30 days. Moreover, this Zacks Rank #1 (Strong Buy) stock has surged 86.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chewy CHWY has emerged to be one of the key gainers of the ongoing pet boom. In a bid to strengthen its presence in the pet and animal businesses, the company expanded its pharmacy business, which will now offer customized medicines for pets. Also, its pet healthcare teleservice — Connect With a Vet — recently added the facility of video consultation and extended hours of operations, including weekends.

The Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 291.4%, on average. Moreover, the Zacks Consensus Estimate for its fiscal 2021 sales and earnings suggests growth of 25.9% and 11.1%, respectively, from the year-ago period’s reported figures. The consensus mark for fiscal 2021 earnings has increased 150% in the past 30 days. Moreover, the stock has skyrocketed 76.2% in the past year.

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Tractor Supply Company TSCO is also making efforts to become a one-stop-shop for pet owners. In doing so, it is now offering online pet prescriptions along with veterinary advice for dogs and cats on its app. Moreover, the company expanded its self-serve pet wash service from 150 to 200 stores and opened 50 to 75 pet wellness centers.

The Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 23.1%, on average. Moreover, the Zacks Consensus Estimate for its 2021 sales and earnings suggests growth of 9.4% and 7%, respectively, from the year-ago period’s reported figures. The consensus mark for 2021 earnings has advanced 1.7% in the past 60 days. Moreover, the stock has rallied 42.6% in the past year.

General Mills GIS is progressing well with its plans to dominate the pet food arena. It recently acquired Tyson Foods' pet treat business, which includes popular treat brands such as Nudges, Top Chews and True Chews, to expand its footing in this space. Also, it remains optimistic about its Blue Buffalo brand, which has been witnessing solid top-line momentum, driven by rising rates of pet adoption.

The Zacks Rank #3 (Hold) stock has a trailing four-quarter earnings surprise of 6.4%, on average. Moreover, the Zacks Consensus Estimate for its fiscal 2021 sales and earnings suggests growth of 1.9% and 2.8%, respectively, year over year. Moreover, the stock has gained 2.7% in the past year.

Colgate’s CL Hill’s Pet Nutrition business remains a major growth driver. Recently, the  Hill’s business revealed plans to invest in a new factory in Leavenworth County, KS, to meet customers’ growing demand for high-quality pet nutrition. Further, management announced the introduction of a new small paws facility in the Topeka facility to provide products for small dogs.

The Zacks Rank #3 stock has a trailing four-quarter earnings surprise of 4.3%, on average. Moreover, the Zacks Consensus Estimate for its 2021 sales and earnings suggests growth of 6.2% and 7.2%, respectively, from the year-ago period’s reported figures. The consensus mark for 2021 earnings has inched up 0.6% in the past 60 days. Moreover, the stock has gained 13.8% in the past year.

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General Mills, Inc. (GIS): Free Stock Analysis Report
 
Tractor Supply Company (TSCO): Free Stock Analysis Report
 
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Chewy Inc. (CHWY): Free Stock Analysis Report
 
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