On Wednesday, MoffettNathanson increased the price target for Chewy Inc . (NYSE:CHWY) to $22.00, up from the previous $18.00, while maintaining a Neutral rating on the stock. The firm highlighted Chewy's recent positive developments, including an uptick in pet adoption rates and an impressive gross margin performance, which has led to a more conservative outlook for the company's future earnings before interest, taxes, depreciation, and amortization (EBITDA) margins.
Chewy has reported a 9% year-over-year growth in pet adoptions, signaling potential early stages of an upward trend in pet household formation. This growth, coupled with a gross margin increase of 80 basis points quarter-over-quarter after adjustments for one-time items, suggests a strengthening financial position for the online pet retailer.
The company's guidance for adjusted EBITDA margins for the fiscal year 2024 ranges between 4.1% and 4.3%. However, MoffettNathanson forecasts a higher adjusted EBITDA margin of 4.6% for the same period. These expectations are underpinned by Chewy's improved sales mix, higher volumes, and the anticipated contribution of onsite advertising to nearly 1% of sales by year's end.
Chewy's strategic moves, including a share buyback program set to commence this quarter, are expected to counteract the high short interest in the stock, particularly during the typically low-volume summer months. This approach is part of the company's broader effort to navigate through the competitive landscape and signal a recovery in the second half of 2024.
Despite the positive indicators, challenges remain for Chewy. The company continues to experience a decline in net customer numbers and is relying on a significant rebound in the latter half of 2024 to stabilize its active customer count.
Moreover, the introduction of Chewy+, a paid loyalty plan offering free shipping, indicates heightened competition, especially from major players like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT). This move deviates from Chewy's previously predictable business model and raises concerns over the company's ability to maintain its competitive edge.
InvestingPro Insights
Chewy Inc. (NYSE:CHWY) has been the subject of recent analyst attention, and real-time data from InvestingPro provides additional context to the company's financial standing. With a market capitalization of $9.37 billion and a revenue growth of 10.17% over the last twelve months as of Q4 2024, Chewy shows signs of expansion in its market presence. Despite a challenging competitive landscape, the company holds a strong cash position, holding more cash than debt on its balance sheet, an InvestingPro Tip that could reassure investors of its financial stability.
InvestingPro data also reveals a high Price/Book multiple of 14.45 as of Q4 2024, which may suggest that the stock is trading at a premium compared to its book value. This aligns with MoffettNathanson's observation of Chewy's high earnings multiple, indicating a potentially optimistic market sentiment towards future growth. Moreover, Chewy's net income is expected to grow this year, a positive outlook that is further supported by analysts predicting the company will be profitable this year, another InvestingPro Tip that may interest potential investors.
For those interested in a deeper dive into Chewy's financials and future prospects, InvestingPro offers a total of 9 additional InvestingPro Tips. By using coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, granting access to comprehensive analytics and insights to make informed investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.