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Stock Strategist

Blue Buffalo's a Natural Buy

It's poised to capitalize on trends favoring premium and natural pet foods, and it's undervalued.

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As pets are increasingly seen as members of the family by millennials choosing to delay parenthood and by older households where children have left the home, owners are seeking premium pet foods that mirror trends in human categories, particularly those favoring natural, clean-label, high-protein, and snack items.  Blue Buffalo Pet Products (BUFF) has benefited, with an all-natural lineup that contributes about one third of subcategory sales.

The premium subcategory is far more conducive to developing durable brand intangible assets, which we believe have given Blue Buffalo a competitive advantage. Because owners hesitate to switch from a tolerated food and are reluctant to cut pet spending in times of economic stress--no significant trade-down occurred during the 2008-09 recession--Blue Buffalo’s broad product set has delivered strong returns on invested capital, averaging 59% the past three years.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.