Central Garden & Pet Company CENT has revealed that its board of directors bumped up its share buyback authorization, underscoring its commitment to boosting shareholder value. The company can now buy back up to an incremental $100 million of its issued and outstanding Common Stock and Class A Common Stock.

As of Dec. 11, 2024, this expansion raises the total repurchase authorization to approximately $130 million.

An increased buyback program often indicates that a company has a strong cash flow and liquidity. It also suggests that a company believes that its stock is undervalued. By repurchasing shares, Central Garden & Pet is signaling confidence in its prospects, which can enhance shareholder sentiment and boost the stock price.

CENT Stock Past Three-Month Performance

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Financial Position & Stock Repurchase Activity of CENT

As of Sept. 28, 2024, Central Garden & Pet reported cash and cash equivalents of $754 million, up from $489 million in the prior-year period. For fiscal 2024, cash provided by operations totaled $395 million compared with $382 million in the prior year. Growth in the operational cash flow was largely driven by changes in working capital, particularly an inventory reduction.

In the fiscal fourth quarter, Central repurchased 270,032 shares of its stock for $9 million. Subsequent to the end of the fiscal 2024, the company purchased an additional 1,663,479 shares for $52 million through Nov. 21, 2024.

Is Central Garden & Pet a Value Play Stock?

From a valuation perspective, Central Garden & Pet’s shares present an attractive opportunity, trading at a discount relative to the industry benchmarks. The company stands out as a compelling value play within the industry, trading at a forward 12-month price-to-sales ratio of 0.82, below the industry average of 2.15 and the sector average of 2.06. This undervaluation highlights its potential for investors seeking attractive entry points. CENT's Value Score of A further emphasizes its investment appeal.

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Declining Revenues & Margin Pressure of CENT

Despite the positive factors, this Zacks Rank #4 (Sell) company has shown several bearish indicators in its recent financial performance. The company reported a significant 10.8% year-over-year drop in fourth-quarter revenues. For fiscal 2024, net sales decreased 3% and organic net sales dipped 4%, suggesting losses in market share and issues with its core Pet and Garden products segments. 

With increasing competition in the brick-and-mortar sector and the need for aggressive promotions to retain market share, CENT faces potential margin compression. In the fourth quarter, the adjusted gross margin contracted 60 basis points year over year to 26% from 26.6% in the prior-year period.

CENT’s Operational Efficiencies & E-Commerce Growth

Central Garden & Pet has made significant progress in its Cost and Simplicity program, streamlining operations to enhance efficiency, reduce costs and better leverage business scale. This included integrating and consolidating operations to improve e-commerce capabilities and reduce shipping costs.

E-commerce sales reached a record high, accounting for 29% of total pet sales in the fourth quarter, marking an increase of 4 percentage points from the previous year. This growth is attributed to ongoing improvements in conversion rates and successful efforts to increase market share online. In the past three months, the CENT stock has gained 6.2% compared with the industry’s 0.9% growth.

Stocks to Consider

Here, we have highlighted three better-ranked stocks, namely Sprouts Farmers Market, Inc. SFM, BRF Brasil Foods SA BRFS and Freshpet Inc. FRPT.

Sprouts Farmers operates in a highly fragmented grocery store industry, with a unique model featuring fresh produce, a food section and a vitamin department focused on overall wellness. The company currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SFM delivered a trailing four-quarter earnings surprise of 15.3%, on average. The Zacks Consensus Estimate for SFM’s current financial-year earnings and sales indicates growth of 29.6% and 12.2%, respectively, from the year-ago reported figures.

BRF Brasil Foods, formerly Perdigao S.A., is a Brazil-based food company. It presently carries a Zacks Rank of 2 (Buy). BRFS delivered a trailing four-quarter average earnings surprise of 51.5%. 

The Zacks Consensus Estimate for BRF's current financial-year earnings and sales indicates growth of 260% and 14.7%, respectively, from the year-ago reported figures.

Freshpet manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats in the United States and Canada. FRPT has a Zacks Rank #2 at present. 

The Zacks Consensus Estimate for Freshpet’s current financial-year earnings and sales indicates growth of 228.6% and 27.3%, respectively, from the year-ago reported figures. FRPT delivered a trailing four-quarter average earnings surprise of 144.5%.

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