BMO's 7 Reasons To Like Central Garden & Pet

Central Garden & Pet Co (NASDAQ: CENT), a producer and distributor of lawn, garden and pet supply products, boasts a strong product portfolio with substantial market share in niche categories, according to BMO Capital Markets. 

The Analyst

BMO's Shannon Coyne initiated coverage of Central Garden & Pet with an Outperform rating and $45 price target.

The Thesis

The bullish case for Central Garden & Pet's stock is sevenfold, Coyne said in the initiation note. (See the analyst's track record here.) 
The analyst said the following factors support BMO's stance on the stock: 

• Management has a favorable reputation of M&A deals and the company is now in a "sweet spot" where small deals can generate a "material impact" to sales and earnings.
• The company has plenty of room for growth in the $19-billion garden market, where it holds a 3-percent market share. The larger pet segment is a $28-billion market and the company has a 2-percent market share.
• Various products in niche product categories like wild bird feed and chew toys for dogs should gain market share.
• Central Garden & Pet has a "continuous improvement mindset" with the objective of removing 1-2 percent of costs per year, which fuels profitability and funds organic growth initiatives.
• The company has a strong financial track record, including an industry-leading free cash flow conversion rate of over 150 percent on average in the past three years.
• The management team is stacked with leaders from various consumer packaged goods companies and complemented with entrepreneurs who boast complementary outside experience.
• The pet category and pest control segments have large pricing power, which gives some of the company's private label business a competitive advantage.

Price Action

Central Garden & Pet shares were trading up 1.35 percent to $40.49 at the time of publication Monday. 

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