#$petm

An extremely volatile trading session for equities, which ended on a down note, coming on the heels on the worst percentage loss trading week in over 3 years for major averages. The Dow Industrials were up over 100 points early in the session, but traded down more than 100 late day. Weakness started overseas with Europe (Germany down -2.7%) and Emerging Markets (Russia plunges again), the S&P 500 now down about 4% from early December record intraday highs. Oil prices another sharp downturn, off more than 2% (but falling more after hours), with gold prices falling as well – sector selling was broad based. The S&P 500 dropped below 2,000 for the first time since October.

The PetSmart Head & Shoulders & Extravagant Consumption

I would never short this stock personally after it has fallen so precipitously.

But I would also not be long here as the stock broke the head and shoulders neck line after its earnings report and weaker than expected guidance.

I have been amazed, in the first place, by the social trend towards splurge spending on pets. It always represented, to me, a contorted sliver of American extravagant consumption.

PetSmart Inc. (PETM) is set to report FQ4 2014 earnings before the market opens on Wednesday, March 5th. PetSmart is a chain of retail pet supply and service stores which operate throughout the United States, Canada, and Puerto Rico.  In January PetSmart stock declined sharply as the company received downgrades from both Deutsche Bank and UBS. However, PETM has recently reversed the downward momentum and has recovered some of its loses through February and early March. Wednesday’s earnings release may be an opportunity for PetSmart to push itself back up to the levels where it began the year. Here’s what investors are expecting PetSmart to report.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see Estimates and Interactive Features for PetSmart)

The current Wall Street consensus expectation is for PETM to report $1.22 EPS and $1.827B revenue while the current Estimize.com consensus from Buy Side and Independent contributing analysts is $1.24 EPS and $1.830B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting PetSmart to beat the Wall Street consnesus on both EPS and revenue.

Over the previous 4 quarters for which data is available the consensus from Estimize.com has been more accurate than Wall Street in predicting PetSmart’s EPS everytime and has been more accurate on revenue once. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the two groups.

The distribution of estimates published by analysts on the Estimize.com platform range from $1.23 to $1.24 EPS and $1.825B to $1.836B in revenues. This quarter we’re seeing a very narrow distribution of estimates for PetSmart.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.

Over the past 4 months Wall Street expectations for both EPS and revenue have been falling. The Street’s EPS consensus fell from $1.24 to $1.22 while its revenue consensus dropped from $1.847B to $1.827B. Timeliness is correlated with accuracy and decreasing analyst revisions going into an earnings report are often a bearish indicator.

The analyst with the highest estimate confidence rating this quarter is turbinecity who projects $1.23 EPS and $1.836B in revenue. In the Winter 2014 season turbinecity is rated as the best analyst and is ranked 17th overall among over 3,950 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case turbinecity is expecting PetSmart to beat the Estimize community on revenue but come up short on earnings per share.

Although PetSmart got off to a rocky start in 2014, things have gotten better for shareholders in February. The upcoming earnings release offers an opportunity for PetSmart to get back on track and if the company can beat the expectations from the market as represented by the Estimize.com community, it may be able to restore levels from late 2013.