October 3, 2023

Cool Rabbits

Healthcare Enthusiast

7 Best Pet Stocks to Buy in 2023 | Investing

Americans love their pets and aren’t above spending good money to ensure their furry friends remain a big part of the family. All in all, the U.S. pet expenditures market is expected to reach $143.6 billion in sales in 2023, up from $136.8 billion in 2022 and $90.5 billion in 2018, according to the American Pet Products Association.

Even as high inflation and soaring consumer product costs take a big bite out of household budgets, Americans are likely to steer household funds into pet care. According to Packaged Facts’ 2023 Survey of Pet Owners, pet products and services “are at the bottom of the list of household spending cutbacks, second only to human medicine and health care.”

Reflecting both higher prices and Americans’ deep commitments to their pets, “pet parents remain tenacious when it comes to pet care, with 68% spending more in February 2023 vs. January 2022 even as they looked for ways to economize,” the report states.

This expansion of pet spending opens up a door for investors seeking a growth area that should remain resilient for years. The pet industry seems to fit the bill in that regard – especially with these seven stocks:

Pet stock Implied upside as of July 18 market close
Zoetis Inc. (ticker: ZTS) 27.3%
Idexx Laboratories Inc. (IDXX) 9.6%
Chewy Inc. (CHWY) 19.3%
Freshpet Inc. (FRPT) 14.2%
Petco Health and Wellness Co. Inc. (WOOF) 32.7%
PetIQ Inc. (PETQ) 23.2%
Trupanion Inc. (TRUP) 43.4%

This animal health technology stock has been on the rise in the last three months, especially after the company reported first-quarter earnings that beat analyst expectations. Q1 earnings landed at $1.31 per share, higher than the $1.25 analysts projected. That should lead to short-term share growth, as consensus Wall Street analyst projections see ZTS shares rising by 27.3% to a target price of $217.80. ZTS traded at $171.08 per share as of the July 18 market close.

Company leadership certainly has faith in ZTS’ financial health, with the company reconfirming its full-year guidance: “Looking ahead, we see positive indicators and strong demand for our animal health products, and we remain committed to delivering strong growth in 2023, based on our market leadership, innovative franchises and diverse portfolio, while continuing to invest for the future,” said CEO Kristin Peck after the Q1 earnings release.

Idexx Laboratories Inc. (IDXX)

Idexx, an animal veterinary products and services company, is on a tear in 2023. Its share price is up 34.2% year to date, to $547.47 as of July 18. The company is benefiting from robust veterinary services demand, and it’s been that way for a while now. In the past five years, IDXX earnings have risen about 19%, compared to 4% for its overall sector.

The company has a solid record of generating annual returns for its shareholders, joining Apple Inc. (AAPL) and Nvidia Corp. (NVDA) as the only U.S. companies to generate 10 times returns over the past decade. The company continues to benefit from a strong and resilient pet sector and has a sizable global presence, with customers in 175 countries.

Many Wall Street analysts are on board with Idexx, including Atlantic Equities analyst Steve Chesney, who stuck to a “buy” rating in mid-June on IDXX stock, setting a price target of $600 per share. That’s an implied upside of 9.6%.

Headquartered in Dania Beach, Florida, this pet products e-commerce company is in rebound mode in mid-2023. Its share price closed at $38.07 on July 18, an increase of only 2.7% year to date, as a skittish public watches every dollar in their household budgets amid high consumer prices.

The company received some support on July 17, when Goldman Sachs upgraded CHWY from “neutral” to “buy.” Meanwhile, the average analyst price target for CHWY stock is $45.42, an implied upside of 19.3%.

Goldman analyst Eric Sheridan says Chewy should see 10% revenue growth and solid market share expansion through 2027.

This Secaucus, New Jersey-based pet foods provider is up 27.8% on a year-to-date basis and is up 44.9% in the past year, landing at $67.42 per share as of July 18. Analysts are lining up behind FRPT stock, with both Piper Sandler and Jefferies staying put with a “buy” rating. Piper Sandler’s Michael Lavery has set a price target of $88 on FRPT shares, and Corey Grady from Jefferies set a lower target price of $77 per share. Even based on the lower estimate, the stock has an implied upside of 14.2%.

A proxy fight led by activist investor Jana Partners over control of the company’s board of directors could gum up the works for Freshpet in the short term, but investor momentum is in its favor in 2023, and FRPT stock could be a staple in portfolios for the long haul.

Petco Health and Wellness Co. Inc. (WOOF)

This big-box retailer provides one-stop shopping for veterinary care, grooming, food and other pet supplies at about 1,500 locations in the U.S., Mexico and Puerto Rico. The stock has fallen over the past year, with shares losing 41.7% as pet owners pulled back on spending in 2022.

The data seems to be shifting in Petco’s favor in 2023, after the company in May reported a first-quarter revenue increase of 5.4% to $1.56 billion, which beat analyst projections of $1.5 billion. Strength in the company’s consumables business (up 11% year over year) and services (up 25%), as well as higher prices, drove the revenue beat.

The company aims to make $100 million in principal payments on its term loan in 2023 and says it “remains committed to strengthening its balance sheet through de-levering long term.” That sentiment has helped turn the price of WOOF shares around, as it has rebounded 10.5% since the end of May.

Eight Wall Street analysts – according to stock rating site TipRanks.com – set an average price target of $11 for WOOF stock, which represents a 32.7% increase over its July 18 closing price.

With a market cap of $485 million, Eagle, Idaho-based PetIQ is at the lower end of the size scale compared with most of the pet stocks on this list. Yet PETQ shares are on fire in 2023, rising by 76% on a year-to-date basis as of July 18.

First-quarter results had a lot to do with that growth, with earnings of 45 cents per share beating the consensus analyst estimate of 35 cents. Earnings were up a whopping 28.6% for the quarter, while the company has also beaten consensus EPS projections four times in a row.

Since PetIQ makes its money producing and distributing pet medications and wellness products to retailers, upbeat consumer sentiment on spending at the midpoint of 2023 should also help boost PETQ shares, which are moving in the right direction compared with a lackluster 2022.

Truist Financial set a price target of $20 for PETQ stock, according to TipRanks, which represents a 23.2% increase over its July 18 closing price.

With the U.S. pet insurance market rising by 23.5% over the past year, according to the North American Pet Health Insurance Association, Trupanion is sitting in the catbird seat as one of the world’s top pet insurance companies. The Seattle-based company mainly provides insurance for household dogs and cats, and it should benefit as consumer spending in those pet care segments grows substantially in 2023.

The company’s share price had been reeling for most of 2023, down more than 44% year to date, but TRUP stock has rebounded as analysts have provided some stability, with a “hold” call from Piper Sandler analyst John Barnidge setting a price target of $25 per share.

That call helped boost the company’s stock in the past two weeks to $26.40 as of July 18. Seven Wall Street analysts on TipRanks now set an average price target of $37.86 for TRUP stock, which represents a 43.4% upside. Plus, Trupanion is looking to catch a tailwind from the ever-burgeoning pet insurance market.