Analysis: Listed pet care firms deliver modest returns as sector shows resilience

Companies in the pet sector listed on stock exchanges delivered moderate gains over the past 12 months, according to the Global Pet Care Index by European stock index provider STOXX.

The index tracks companies that benefit from the sustained growth in pet ownership and have significant exposure to the pet care market.

In this period, the index posted a 3.16% growth in gross return, which includes price appreciation, dividend distribution and paid interest.

This increase surpassed that recorded by price return (measuring only the change in stock price), which advanced 1.48% in the last 12 months.

This indicates that, on average, companies in the pet sector not only saw a positive share performance during the period, but also distributed more dividends, pointing to the presence of mature, cash-generating players within the market.

Although it is only a benchmark, these metrics help to understand how investment in the pet market has performed recently.

Peak point

Year to date, pet corporations have accumulated a gross return increase of 1.25%. The index grew continuously throughout the whole of February, reaching a peak on the week of 27, which was its highest score since it started in 2010. Price return grew almost at the same rate, at 1.18% from January to March.

In that month, several pet businesses released their financial results, including those with a large representation in the Index.

Those included Freshpet, which surpassed $1B+ net sales for the first time; Elanco, which reported a surge in revenue and market share gains in 6 countries; and J.M. Smucker, which, despite registering a slight decline in the pet market, reported growth in cat food.

Although the earnings season helps explain the peak, the year still shows an upward trajectory even after normalizing in early March. This data indicates that stocks have been appreciating and investors have been receiving sustained returns beyond one-off stimuli.

Historic overview

The index was created in June 2012, with a base value of 100. In terms of gross return, it currently stands at 346. This represents a growth of 7.1% over the last 5 years and 88% over the last 10 years.

The most significant hike occurred in 2020 and remained high until 2021, coinciding with the boom in adoptions and the pet market during the Covid-19 pandemic. From 2022 onwards, it has fluctuated, but remains at much higher levels than before this period.

The price-return-based index shows a similar trajectory, but is currently at 273.9.

Composition

The index considers stocks in developed and emerging markets. However, United States responds for 3 thirds of the list in terms of weight (74.9%), followed by Japan (8.7%), Switzerland (8%), France (2.8%), UK (2.4%), China (2%), Canada (1.1%), Thailand (0.2%) and Brazil (0.1%) as the countries with bigger representation.

While STOXX does not disclose the full list of companies included in the index, it does publish the top 10 components, which are Merck, Zoetis, Nestlé, Cencora, Colgate-Palmolive, Elanco, Clorox, Uni-Charm, J.M. Smucker, and Post Holdings.

Other stocks to watch

Packaged food stocks (some of which are included in the Index due to their pet food operations) are “on watch” as higher oil prices factor in, according to financial research platform Seeking Alpha.

Brent and crude oil prices surged by 50% in a single month, based on data from Yahoo Finance, following the escalation of conflicts in the Middle East at the end of February.

Citing analysis from equity research analyst Scott Marks at capital markets firm Jefferies, the firm highlights that the main risk is a “gradual squeeze on margins as freight, packaging, and processing costs escalate faster than pricing to consumers can adjust.”

“The prospect of weeks or months of elevated oil prices creates a landscape where operational efficiency, supply chain proximity, and portfolio mix will determine which companies can withstand the volatility,” it adds.

According to Seeking Alpha, Marks’ team also noted that US food stocks are trading at their widest valuation discount relative to the S&P 500 in 20 years, indicating that they remain comparatively undervalued versus the broader market.