Ahead of the Bell: Analyst upgrades PetSmart

NEW YORK (AP) _ Rising food prices and a favorable industry position will likely aid PetSmart Inc., an analyst said Wednesday while upgrading the pet products retailer.

JPMorgan analyst Christopher Horvers boosted his rating to "Overweight" from "Neutral" with a $29 price target, implying he expects the stock to rise 31 percent over Tuesday's $22.21 close.

Rising food costs worldwide have likely pushed pet food prices up by the high single digits, Horvers said. These higher prices are likely being passed on to consumers, and added about 2 percent to same-store sales in the past 6 months, he said.

As the company boosts prices on previously purchased inventory, there is a "subtle merchandise margin benefit."

About 30 percent of PetSmart's revenue comes from food sales, he said.

Meanwhile, the pet products industry will likely post 3 percent to 4 percent growth compared to market declines in the home improvement, home furnishing and office superstore sectors, he said.

"While the industry is certainly feeling the impact of the weak consumer backdrop, in addition to a marginal slowdown in the pet adoption/pet parenting trend, from a secular perspective, people are 'still pretty crazy' about their cats and dogs," Horvers said in a note to clients.

A company representative was not immediately available for comment.

The upgrade comes less than a month after the Phoenix-based company posted a steep drop in first-quarter profit related to a stock sale, but results still beat Wall Street's expectations.

So far this year, the stock is down about 6 percent.