On Thursday, Deutsche Bank adjusted its outlook on Chewy Inc . (NYSE: NYSE:CHWY), increasing the price target to $20 from $18, while maintaining a Hold rating on the stock. The firm noted that Chewy reported better-than-expected revenue and a significant EBITDA outperformance for the first quarter, despite a year-over-year decline in user numbers that was more pronounced than in the previous quarter.
Chewy's first-quarter results showed net adoption data turning positive for the first time since 2022, with reactivated users growing in the mid-teens year-over-year, surpassing the company's expectations. Additionally, the company displayed a reduction in churn both year-over-year and quarter-over-quarter. The firm also highlighted Chewy's success in driving healthcare attach rates, with year-over-year growth in Other revenue accelerating despite a tough comparison from the previous year.
Despite the positive indicators and a raised full-year EBITDA guidance that matched the first quarter's beat, the firm's revenue guide for the full year remained unchanged. Deutsche Bank expressed optimism about the potential for Chewy to outperform estimates throughout the year, based on improving market-level trends for the pet industry.
However, the firm remains cautiously optimistic about Chewy's medium-term user growth. While net new customer figures exceeded expectations, the overall number of users continued to decline due to a decrease in gross additions, which includes both new and reactivated users. The firm suggested that even with net adoptions turning positive, the overall number of pet households could still be decreasing when considering factors like breeder acquisition and pet deaths.
In conclusion, Deutsche Bank sees signs of improvement for Chewy, but advises caution regarding the assumption of a return to user growth in the medium term and the potential for sustained mid-single to high-single digit revenue growth beyond 2025.
InvestingPro Insights
Deutsche Bank's updated outlook on Chewy Inc. aligns with some of the real-time metrics observed on InvestingPro. Chewy's market capitalization stands at a robust $9.37 billion, reflecting investor confidence in the company's market position. The pet retailer's recent performance shows a significant return over the last week, with a 32.23% price total return, and a strong month, boasting a 43.43% return. These figures underscore the company's momentum in the eyes of investors, which may support Deutsche Bank's optimism for Chewy's ability to outperform estimates throughout the year.
On the valuation front, Chewy's current P/E ratio is a high 88.51, which suggests a premium market valuation, potentially due to expectations of future growth. Additionally, the company holds more cash than debt, which is a positive sign of financial stability, according to InvestingPro Tips. Chewy's ability to grow net income this year is another positive indicator, although there is a note of caution with two analysts revising their earnings downwards for the upcoming period.
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