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Deutsche Bank Raises Blue Buffalo’s Price Target to $30 Per Share

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Price movement

Blue Buffalo Pet Products (BUFF) has a market cap of $5.0 billion. It fell by 4.3% to close at $25.68 per share on August 11, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.6%, 0.71%, and 37.3%, respectively, on the same day. BUFF is trading 0.26% below its 20-day moving average, 1.9% above its 50-day moving average, and 18.8% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid-Cap Growth Index ETF (JKK) invests 0.14% of its holdings in Blue Buffalo Pet Products. The ETF tracks a market-cap-weighted index of midcap companies selected by Morningstar based on their growth characteristics. The YTD price movement of JKH was 5.4% on August 11, 2016.

The market caps of BUFF’s competitors are as follows:

  • Procter & Gamble (PG) — $232.8 billion
  • The J.M. Smucker Company (SJM) — $17.6 billion

Blue Buffalo Pet Products’ rating

Deutsche Bank has increased the price target of Blue Buffalo Pet Products to $30 from $28 per share and maintained the “buy” rating on the stock.

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Performance of Blue Buffalo Pet Products in 2Q16

Blue Buffalo Pet Products reported 2Q16 net sales of $286.9 million, a rise of 13.0% over the net sales of $254.0 million in 2Q15. The company’s gross profit margin and operating income rose by 12.9% and 53.9%, respectively, between fiscals 2Q15 and 2Q16.

Its net income and EPS (earnings per share) rose to $36.6 million and $0.18, respectively, in 2Q16, compared with $22.6 million and $0.11, respectively, in 2Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS of $68.3 million and $0.19, respectively, in 2Q16, a rise of 40.5% and 46.2%, respectively, over 2Q15.

BUFF’s cash and cash equivalents and inventories rose by 22.0% and 4.8%, respectively, between 4Q15 and 2Q16. Its current ratio rose to 6.1x in 2Q16 from 3.7x in 4Q15.

Projections

The company has made the following projections for fiscal 2016:

  • net sales in the range of $1.14 billion to $1.15 billion
  • gross margin of ~44%
  • adjusted EPS in the range of $0.74 to $0.76, which excludes costs related to litigation and the company’s secondary public offering
  • capital expenditures in the range of $50 million to $60 million
  • the effective tax rate of ~37.3%

In the next part, we’ll discuss Newell Brands (NWL).

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