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Wedbush Morgan Cuts PETCO Opinion

After PETCO Animal Supplies (PETC) announced quarterly results Friday, Wedbush Morgan analyst Joan Storms cut her investment recommendation on the stock to hold from buy. She cites the magnitude of shortfall in the company's forward guidance, potential structural impediments, and lack of near-term catalysts.

The pet-products retailer posted 31 cent second quarter earnings per share. It sees 25 cent to 28 cent earnings per share during the third quarter and $1.36 to $1.44 during the fiscal year 2006.

Storms said the company cut its third quarter and fiscal year 2006 (ending January) guidance on a combination of factors, including weak traffic so far in the third quarter, higher gas prices, and new investment initiatives costing more than expected. Storms thinks that both weak industry conditions and several recent guidance revisions could lead investors to put PETCO stock in the penalty box for a while. She cut her $1.67 fiscal 2006 earnings per share estimate to $1.40, and her $2.00 fiscal 2007 estimate to $1.61.

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