On Thursday, Chewy Inc . (NYSE:CHWY) shares saw its price target increased to $22 from the previous $16 by Piper Sandler, while the firm maintained a Neutral rating on the stock.
The adjustment follows Chewy's report of a strong first-quarter EBITDA, surpassing expectations, and the company's revised EBITDA forecast for the year.
Chewy's sales trends have been moderate due to a slowdown in pet adoption rates and a decline in pet food price inflation. However, the company is identifying more solid avenues for margin growth, such as sponsored advertisements and product mix improvements.
Additionally, Chewy's management has highlighted a year-over-year increase of 9% in pet adoptions and anticipates customer growth in the second half of the year.
The online pet retailer also announced a $500 million share repurchase program, leveraging its $1.1 billion net cash position. This move is seen as a strategic effort to capitalize on the company's financial health.
Piper Sandler's revised price target is based on a shift in valuation methodology from enterprise value-to-sales (EV/Sales) to enterprise value-to-EBITDA (EV/EBITDA) multiples, given the improved profitability outlook.
The firm has applied a multiple of 15 times the estimated 2025 EBITDA to Chewy, which is slightly lower than the multiples for other e-commerce companies covered by the firm.
This conservative multiple reflects the belief that Chewy's growth is less tied to potential housing market recoveries that could benefit from lower interest rates over time.
InvestingPro Insights
Following the positive outlook from Piper Sandler, InvestingPro data provides a deeper dive into Chewy Inc.'s financial health and market performance. With a market capitalization of approximately $9.37 billion, Chewy's valuation metrics are eye-catching. The company currently trades at a high P/E ratio of 88.51, reflecting investor optimism about its future earnings potential. This is further underscored by the adjusted P/E ratio of 112.07 for the last twelve months as of Q1 2025, indicating a premium valuation by the market.
InvestingPro Tips suggest that Chewy holds more cash than debt, providing a solid financial cushion. Additionally, net income is expected to grow this year, offering a promising outlook for earnings. However, it's worth noting that two analysts have recently revised their earnings expectations downwards for the upcoming period, which investors may want to consider.
Chewy's recent performance in the stock market has been robust, with significant returns over the last week and month. Investors may want to explore these trends further using InvestingPro, which lists additional tips that could provide more insight into Chewy's performance and valuation. For those interested in a deeper analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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