Before diving into those two events in more detail, here is a quick recap on PETQ. As noted above, the company just went public and it saw healthy demand for its IPO. Specifically, it increased the deal size to 6.25 million shares from 5.67 million and priced at the high end of the $14-$16 expected price range. Shares then opened for trading at $21, good for a 24% opening pop.
As its name implies, PETQ's business focuses on pets. Its a distributor and manufacturer of veterinarian-grade pet prescription medications, over-the-counter flea and tick preventatives, and health and wellness products for cats and dogs. Some of the brands it distributes include Heartgard, Frontline, and Rimadyl. Its proprietary brands include Heart Shield, PetLock, vetGuard, and PetAction.
The company has launched its products into all major retail channels, including mass, food and drug, clubs, pet specialty, online, and pharmacies. Some of its most prominent customers include Walmart (WMT), Sam's Club, Costco (COST), PetSmart, Petco, Kroger (KR), and Target (TGT). Its products are also sold at more than 40,000 retail pharmacy locations.
A key advantage that PETQ has is that pet owners can typically buy its distributed products from retailers at a 20-30% savings compared to the prices charged by veterinarians, and can save as much as 50% on its proprietary value-branded products, which contain the same active ingredients as distributed products and are subject to the same FDA and EPA approval process.
Impressive Q2 Results
Since its quarterly report came before the expiration of the quiet period, there were no analyst estimates yet. However, on an absolute basis, PETQ's results looked strong. Revenue jumped by 42% year/year to $87.2 million driven by sales to new customers, increased sales to existing customers, and the launch of new products.
Gross margin sharply increased to 18.3% from 14.6%. This was due to improved economies of scale and product mix. The combination of strong sales growth and enhanced margins drove its operating income to $6.7 million vs. $700K in the year ago period. Likewise, net income also soared to $6.1 million from $600K.
Analysts Like What They See
The tone this morning from the analyst community is clearly positive on PETQ. One of the most bullish firms is SunTrust, which initiated the stock with a Buy and $28 price target, 23% higher from current prices. Meanwhile, Raymond James, William Blair, and Oppenheimer ($28 price target) all initiated PETQ with Outperforms. On the more cautious side, Jefferies initiated it with a Hold and a $25 price target on the stock.