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February 14, 2012

Stock of the Day

Welcome to the Stock of the Day for February 14, 2012 and Happy Valentine's Day. This morning I read that the holiday isn't just about flowers and chocolates for human loved ones. The average person will spend about 3% of their holiday budget on gifts and treats for their pets (about $4.52 per person). So today we're going to take a look at PetSmart Inc. (PETM), one of the biggest specialty retailers in the business and seller of any pet supply you can think of.

Company Overview: From fish and aquariums to puppies and veterinarian services, you can find it all at PetSmart. The company is the largest retailer of pet food and supplies in a $40 billion industry.

Earnings: PetSmart will next report earnings in March, and if history is any indicator, the company is in for another solid quarter. PETM has beat analysts estimates for earnings in each of the last four quarters and current estimates show 6.6% sales growth and 16.9% earnings growth. That's not going to win any awards, but it's solid growth that many retailers would kill for.

Current Ratings: If you run PetSmart through my free Portfolio Grader ratings system, you'll quickly see that PETM currently receives a Total Grade of A. I give the company A's and B's in Operating Margin Growth, Earnings Growth, Analyst Revisions, Cash Flow and Return on Equity. I would like to see the company pick up some earnings momentum and beat estimates by a wider margin, but since the company has such strong buying pressure, I'm comfortable recommending the stock.

Bottom Line: PETM is a strong buy. The stock has been consistently hitting new 52-week highs and I don't see any major hurtles in the way of this excellent retailer.

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