Benzinga | Dec 16, 2020 08:12AM EST

Argus Highlights $4 Price Target On Dogness

Argus Research, an independent investment research firm, continues its Equity Research Report coverage on Dogness (International) Corporation (NASDAQGM:DOGZ)

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Highlights, as conveyed by Argus Analyst Steve Silver, include:

COMPANY HIGHLIGHTS

DOGZ: A leading developer, manufacturer and distributor of Dogness-branded, OEM and private label pet products, with a track record of innovation in the smart tech segment.

* In our view, Dogness has continued to execute despite a challenging fiscal 2020, and is well positioned to return to profitability in fiscal 2021. We expect favorable pet market trends, accelerated by people spending more time at home as a result of COVID-19, to continue in fiscal 2021, with an abatement of headwinds, including a trade dispute between China and the United States, which has resulted in higher export tariffs and reduced sales in the United States.

* During the first half of fiscal 2021, Dogness has leveraged its sales, marketing and distribution relationships with leading specialty, brick & mortar, mass market and online/e-commerce companies. These include Petco, Chewy, Amazon, Walmart, Costco, Target, Sam's Club, Wayfair, and JD.com, among others.

* The Company also opened a new manufacturing factory in China, integrating key operating and management functions, along with implementing the latest in technology developments.

* In aggregate, this should help Dogness to enhance its long-term sales and gross-margin profile. Indeed, we expect Dogness to continue its evolution into a higher-margin technology-focused pet product company with a diversified global footprint, and to capitalize on favorable long-term global trends in the pet care industry.

* Sales of the smart pet product line, which launched in calendar 2018 and includes connected collars, harnesses, feeders, and play robots, totaled $4.3 million in fiscal 2020, more than double prior-year results. The unit accounted for 22.6% of total sales during fiscal 2020, compared with just 8% in fiscal 2019.

* As of June 30, 2020, Dogness had approximately $4.8 million in cash and short-term investments on its balance sheet. We anticipate Dogness will return to positive operational cash flow during fiscal 2021, but think the company could raise capital during the year on more favorable terms, as its recovery takes hold.

* DOGZ shares are trading at roughly 9-times our EPS estimate of $0.23 for fiscal 2022. In our view, the current valuation does not reflect Dogness' recent initiatives to help drive enhanced revenue and margin expansion, and the significant accelerated growth of the pet market due to COVID-19. We view the shares as having upside and, based on our forward P/E analysis, a fair value of $4.00.