Credit Suisse: PetSmart Is Targeting PetMed's Core Business

Going into Thursday, Credit Suisse was already leery of Petmed Express Inc PETS, and the formal launch of PetSmart’s online pharmacy only reinforced their skepticism.

“We reiterate our Underperform rating as PETS continues to face challenges from multiple angles, particularly with new entrants such as PetSmart attempting to make more meaningful inroads and veterinarians continuing to control an estimated 67 percent of the pet medication market,” Credit Suisse analyst Erin Wilson Wright said in a late Thursday note. (See Wilson Wright's track record here.)

The analysis seemed to resonate with investors. Although previously advertised, the official rollout of PetSmart’s online ordering and delivery service, which includes prescriptions, over-the-counter medications and other products, prompted a 7-percent sell-off in Petmed stock.

“The effort encroaches on PETS' niche pet prescription market opportunity (about half of revenues), adding to a growing list of competitive challenges for the company,” Credit Suisse wrote, noting that PetSmart’s e-commerce site already attracts eight times the unique monthly visitors of 1800petmeds.com.

The analysts expect PetSmart to partner with or buy supplies from the likes of Vets First Choice or Patterson Companies, Inc. PDCO’s VetSource, which previously had a marketing program by which Vetsource was able to help veterinarians re-engage with their clients through PetSmart.

Credit Suisse has a $19 price target on the stock, which was trading at $33.07 at the time of publication.

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