Despite inflationary pressures that are increasing the price of goods across the board, consumers are still pampering their pets when it comes to food.
CNBC reported earlier this week that major pet products retailers Chewy Inc. (CHWY, Financial) and Petco Health and Wellness Co. Inc. (WOOF, Financial) said they have not seen a significant decline in shoppers buying pet food, though there has been a pullback in purchases of toys and leashes.
Based on these trends, the GuruFocus All-in-One Screener, a Premium feature, found companies that manufacture pet food or animal care-related products and are popular with gurus based on 13F filings for the second quarter include Zoetis Inc. (ZTS, Financial), IDEXX Laboratories Inc. (IDXX, Financial), Phibro Animal Health Corp. (PAHC, Financial), Elanco Animal Health Inc. (ELAN, Financial) and Freshpet Inc. (FRPT, Financial).
Zoetis
With a combined equity portfolio weight of 7.45%, 17 gurus are invested in Zoetis (ZTS, Financial).
The Parsippany, New Jersey-based company, which produces medications and vaccinations for pets and livestock, has a $75.18 billion market cap; its shares were trading around $160.37 on Friday with a price-earnings ratio of 36.01, a price-book ratio of 16.25 and a price-sales ratio of 9.43.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
The GF Score is also high at 98 out of 100, receiving high marks for profitability, growth, GF Value and momentum as well as a middling rank for financial strength. As such, Zoetis has high future outperformance potential.
GuruFocus rated Zoetis’ financial strength 6 out of 10. In addition to adequate interest coverage, the high Altman Z-Score of 7.25 indicates the company is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability fared even better with a 10 out of 10 rating, driven by operating margin expansion and strong returns on equity, assets and capital that outperform a majority of competitors. Zoetis also has a high Piotroski F-Score of 7 out of 9, indicating conditions are healthy. Consistent earnings and revenue growth contributed to a predictability rank of four out of five stars. According to GuruFocus research, companies with this rank return an average of 9.8% annually over a 10-year period.
Of the gurus invested in Zoetis, the Vanguard Health Care Fund (Trades, Portfolio) has the largest stake with 0.75% of its outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Frank Sands (Trades, Portfolio), the MS Global Franchise Portfolio (Trades, Portfolio) and the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio), among others, also have positions in the stock.
IDEXX Laboratories
Nine gurus have positions in IDEXX Laboratories (IDXX, Financial), representing a combined equity portfolio weight of 6.52%.
The company headquartered in Westbrook, Maine, which develops and manufactures diagnostic products for pets and livestock, has a market cap of $29.32 billion; its shares were trading around $352.50 on Friday with a price-earnings ratio of 45.45, a price-book ratio of 64.29 and a price-sales ratio of 9.12.
According to the GF Value Line, the stock is significantly undervalued currently.
It has a GF Score of 93. While it got high points for profitability, growth and GF Value, the company’s financial strength and momentum received middling ranks. As such, IDEXX is likely to have good performance going forward.
IDEXX Laboratories’ financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt over the past several years, it is manageable due to sufficient interest coverage. In addition, the robust Altman Z-Score of 12.26 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. It is also creating value since the ROIC eclipses the WACC.
The company’s profitability fared better, scoring a 10 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 4, indicating conditions are typical for a stable company. Steady earnings and revenue growth contributed to IDEXX’s five-star predictability rank. GuruFocus found companies with this rank return an average of 12.1% annually.
With a 2.91% stake, Ron Baron (Trades, Portfolio) is IDEXX’s largest guru shareholder. Other top guru investors include Simons’ firm, Ray Dalio (Trades, Portfolio), Jerome Dodson (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Phibro Animal Health
Phibro Animal Health (PAHC, Financial) is held by six gurus with a combined equity portfolio weight of 0.34%.
The Teaneck, New Jersey-based company, which manufactures specialty and mineral nutrition products for livestock and poultry animals, has a $610.39 million market cap; its shares were trading around $15.07 on Friday with a price-earnings ratio of 12.45, a price-book ratio of 2.32 and a price-sales ratio of 0.64.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
The GF Score of 78 suggests the company will likely have average future performance on the back of high points for profitability and GF Value and middling ranks for growth, financial strength and momentum.
GuruFocus rated Phibro’s financial strength 5 out of 10. Although the company has issued new long-term debt in recent years, it is manageable due to sufficient interest coverage. The Altman Z-Score of 2.72 also indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing. The ROIC exceeds the WACC, however, so value creation is occurring.
The company’s profitability scored a 7 out of 10 rating. While the operating margin is in decline, its returns top over half of its competitors. Phibro also has a moderate Piotroski F-Score of 4 and a one-star predictability rank. GuruFocus data shows companies with this rank return, on average, 1.1% annually.
Richard Pzena (Trades, Portfolio) is Phibro’s largest guru shareholder with a 4.78% stake. Simons’ firm, Charles Brandes (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), John Hussman (Trades, Portfolio) and Jones also own the stock.
Elanco Animal Health
Holding a combined portfolio weight of 2.97%, six gurus have positions in Elanco Animal Health (ELAN, Financial).
The company headquartered in Greenfield, Indiana, which produces pharmaceutical products for household pets as well as livestock, has a market cap of $7.45 billion; its shares were trading around $15.64 on Friday with a price-book ratio of 0.99 and a price-sales ratio of 1.65.
The GF Value Line suggests the stock, while undervalued, is a possible value trap currently. As such, potential investors should conduct thorough research before making a decision.
Based on its GF Score of 62, the company has poor performance potential going forward. Elanco received middling marks for profitability, financial strength, GF Value and momentum, but low points for growth.
GuruFocus rated Elanco’s financial strength 4 out of 10. In addition to weak interest coverage, the low Altman Z-Score of 0.89 warns the company could be at risk of bankruptcy since revenue per share growth has slowed down. Further, the company is struggling to create value since the WACC surpasses the ROIC.
The company’s profitability scored a 5 out of 10 rating on the back of margins and returns that are underperforming more than half of its industry peers. Elanco also has a moderate Piotroski F-Score of 5.
Of the gurus invested in Elanco, Dodge & Cox has the largest stake with 10.38% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Elfun Trusts (Trades, Portfolio), George Soros (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and Jones are also shareholders.
Freshpet
Representing a combined equity portfolio weight of 0.12%, five gurus are invested in Freshpet (FRPT, Financial).
The Secaucus, New Jersey-based company, which manufactures specialty dog and cat food under the brand names Nature’s Fresh, Deli Fresh, Vital and others, has a $2.02 billion market cap; its shares were trading around $42.18 on Friday with a price-book ratio of 2.04 and a price-sales ratio of 3.87.
According to the GF Value Line, the stock, while undervalued, is a possible value trap currently. As a result, potential investors should conduct thorough research before making a decision.
The GF Score of 68 indicates the company is likely to have poor future performance, having gained top marks for growth and financial strength as well as low grades for profitability, GF Value and momentum.
Freshpet’s financial strength was rated 8 out of 10 by GuruFocus on the back of a robust Altman Z-Score of 9.11. Assets are building up at a faster rate than revenue is growing, however, indicating the company may be becoming less efficient. The Sloan ratio is also indicative of poor earnings quality.
The company’s profitability did not fare as well, scoring a 3 out of 10 rating. Although the operating margin is expanding, Freshpet is weighed down by negative returns that underperform a majority of competitors. It also has a low Piotroski F-Score of 1, indicating conditions are in poor shape.
With 0.46% of outstanding shares, Fisher is the company’s largest guru shareholder. Freshpet is also held by Dalio, Chuck Royce (Trades, Portfolio), Jones and Baillie Gifford (Trades, Portfolio).
Other popular picks
Additional pet companies that were broadly held by gurus as of the three months ended June 30 included Covetrus Inc. (CVET, Financial), Chewy, Trupanion Inc. (TRUP, Financial), PetIQ Inc. (PETQ, Financial) and Petco.
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
