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DA Davidson Rates Blue Buffalo Pet Products as a ‘Buy’

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Price movement

Blue Buffalo Pet Products (BUFF) has a market cap of $4.8 billion. It rose 3.2% to close at $24.46 per share on October 5, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.9%, -5.9%, and 30.7%, respectively, on the same day.

BUFF is trading 0.18% below its 20-day moving average, 3.6% below its 50-day moving average, and 6.3% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid-Cap Growth ETF (JKH) invests 0.14% of its holdings in Blue Buffalo Pet Products. The ETF tracks a market cap–weighted index of mid-cap companies selected by Morningstar based on their growth characteristics. JKH’s YTD price movement was 4.5% on October 5.

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

  • Procter & Gamble (PG) — $237.1 billion
  • J.M. Smucker Company (SJM) — $15.4 billion

BUFF’s rating

DA Davidson has initiated its coverage of Blue Buffalo Pet Products with a “buy” rating, and it’s set the stock’s price target at $29.0 per share.

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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 $254.0 million it reported in 2Q15. The company’s gross profit margin and operating income rose 12.9% and 53.9%, respectively, between 2Q15 and 2Q16.

Its net income and EPS (earnings per share) rose to $36.6 million and $0.18, respectively, in 2Q16, compared to $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, rises of 40.5% and 46.2% respectively, over 2Q15.

BUFF’s cash and cash equivalents and inventories rose 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

Blue Buffalo Pet Products has made the following projections for 2016:

  • net sales of $1.1 billion–$1.2 billion
  • gross margin of ~44%
  • adjusted EPS of $0.74–$0.76, excluding costs related to litigation and BUFF’s secondary public offering
  • capital expenditure of $50 million–$60 million
  • effective tax rate of ~37.3%

In the next part of this series, we’ll take a look at Toyota Motor (TM).

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