On Friday, RBC Capital adjusted its financial outlook for Chewy Inc . (NYSE:CHWY), reducing the price target on the company's shares to $22 from the previous $35. Despite the decrease, the firm maintained an Outperform rating on the stock.
This revision follows the release of Chewy's fiscal year 2024 sales guidance, which projected an increase of 2-4% excluding the impact of an additional week in the fiscal calendar. This forecast fell short of the modest expectations set after the company's investor day.
RBC Capital noted that the pet sector's future remains uncertain, and investors appear hesitant to anticipate a recovery for Chewy to the extent they have for other retail sectors.
The firm's analysts believe that the downside risk for Chewy's stock is relatively contained at this point. In light of the updated guidance, RBC Capital has revised its fiscal year 2024 net sales growth estimate for Chewy to 4.5%, down from 6.0%, and adjusted its EBITDA estimate to $447 million, up from the prior $435 million.
Looking ahead, RBC Capital has introduced its fiscal year 2025 projections for Chewy, expecting net sales to grow by 8.4% and adjusted EBITDA to reach $556 million. The firm has also updated its valuation approach, shifting the focus to approximately 15 times the forecasted fiscal year 2025 adjusted EBITDA of $556 million.
This change in methodology reflects Chewy's increased emphasis on EBITDA expansion as the pet category shows muted activity for fiscal year 2024.
The analyst from RBC Capital underscored that the new price target still represents a significant potential upside of approximately 37% from Chewy's current stock price levels. This suggests that, despite the near-term challenges, RBC Capital sees a favorable long-term value proposition in Chewy's shares.
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