Pets at Home rallies, broker sticks to 'buy' rating despite last week's profit warning

Jefferies has reduced its price target for Pets at Home Group PLC to 250p from 330p, following a profit warning and a halving of FY26 profit expectations driven by significant weakness and market share losses in its Retail division due to product range issues. Despite these concerns, the firm maintained a 'Buy' rating, citing the robust performance of the Veterinary division as a key valuation anchor, which still implies approximately 30% upside from the current share price. However, Jefferies cautioned about a wide variance in potential outcomes for the retail segment, including negative valuation scenarios, even as the stock rallied 2.75% on Monday.

Analysis

Jefferies has reduced its price target on Pets at Home Group PLC to 250p from 330p, a direct response to a recent profit warning and a significant deterioration in outlook, with FY26 profit before tax expectations having halved over the last three years. The core issue stems from the Retail division, which has transitioned from gaining market share to losing it over the past year, a problem management now attributes to internal factors such as an inadequate product range, particularly in Accessories. Despite these substantial headwinds, Jefferies maintains a 'Buy' rating, anchoring its valuation thesis on the continued strong performance of the group's Veterinary division. The broker's analysis suggests this segment provides a firm valuation floor, with the new 250p target still implying approximately 30% upside from the current share price of 198p. However, Jefferies explicitly cautions that a 'wide variance in scenarios' remains for the retail operation, including potential 'negative valuation outcomes', highlighting the clear bifurcation in performance between the company's two main segments.

Key Decisions for Investors

• Investors should weigh the significant valuation support from the strong Veterinary division against the clear and accelerating deterioration in the Retail segment, which is now losing market share due to internal product issues.
• Given the broker's warning of a 'wide variance in scenarios' for the retail business, it is critical to monitor upcoming earnings reports for any signs of stabilization or further decline in that division's performance before committing new capital.
• For those with a higher risk tolerance, the maintained 'Buy' rating and implied 30% upside to the new price target may represent a value opportunity, assuming the market has overly discounted the stock based on the retail weakness and that the Vet business can sustain its momentum.