On Monday, Piper Sandler adjusted its outlook on Chewy Inc . (NYSE:NYSE:CHWY), increasing the price target to $40 from $35 while sustaining its Overweight rating on the stock. The firm highlighted the stock's significant rise of over 30% in the past month, suggesting that investors are anticipating a slight beat in sales and margins.
According to InvestingPro data, CHWY has delivered impressive returns with a 41.39% gain year-to-date and an 82.37% return over the past year. This expectation is supported by the fact that Chewy's second-quarter sales met projections, but EBITDA margins exceeded expectations by more than 20%.
The analyst's assessment aligns with the consensus, predicting a 4% increase in sales, which is at the top end of the company's guidance. Data indicates a modest 1-point improvement in third-quarter sales and even stronger acceleration quarter-to-date.
With Chewy's next earnings report due on December 4, InvestingPro reveals that three analysts have recently revised their earnings expectations upward, suggesting growing confidence in the company's performance.
Chewy's guidance for flat net additions for the year suggests a slight increase in the second half of 2024. The market estimates of 11,000 and 12,000 net additions in the third and fourth quarters, respectively, are deemed sufficient for the stock's performance.
Promotional checks for the third quarter suggest stability, and with sponsored ads gaining momentum—a key factor in gross margin improvement in the first half of the year—the analyst anticipates third-quarter gross margins to surpass market expectations by 70 basis points. During the Black Friday period, Chewy's promotions mirrored those of the previous year, with discounts up to 50%. Despite the management team's conservative nature, there is speculation that Chewy might slightly increase its EBITDA guidance once more.
Chewy's current trading at 23 times EV/EBITDA is noted as not inexpensive but still lower than its historical average of over 40 times in 2022 and 2023.
The report also mentions an uptick in pet adoptions, a critical factor for the stock's valuation. InvestingPro analysis shows the company maintains strong fundamentals with a gross profit margin of 28.99% and holds more cash than debt on its balance sheet. For deeper insights into Chewy's valuation and 12 additional ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.
According to 24Petcare, the number of pet fosters has increased by 3% through October, marking a reversal from a 2% decline in 2023. The new price target of $40 is based on 1.3 times EV/Sales, which is more consistent with the analyst's group. Chewy remains a heavily shorted stock, with short interest more than doubling year-to-date, reaching 14 million shares.
In other recent news, Chewy Inc.'s financial performance has been turning heads, with second-quarter earnings and revenue surpassing Wall Street's forecast. The company reported an EBITDA of $145 million and a 3% increase in net sales, reaching $2.86 billion. Deutsche Bank (ETR:DBKGn) recently adjusted their outlook on Chewy, raising the price target to $28 from $24 while maintaining a Hold rating. In contrast, BofA Securities upgraded Chewy from Underperform to Buy, citing improving performance metrics and potential for growth.
Meanwhile, TD (TSX:TD) Cowen initiated coverage on Chewy with a Buy rating, projecting a steady growth trajectory, and Morgan Stanley (NYSE:MS) maintained an Overweight rating, projecting a higher than consensus EBITDA of $750 million for the fiscal year 2025. However, Needham initiated coverage with a Hold rating, citing the company's strong position in the e-commerce sector.
Chewy also made a $500 million public offering of its Class A common stock by BC Partners Advisors LP, along with an agreement to repurchase $300 million of its stock from the same entity. Furthermore, Chewy continues to expand its veterinary care services, opening two additional clinics in Colorado and Florida. Currently, Chewy's active customer base stands at 20 million, with the Net Sales Per Active Customer (NSPAC) climbing to $565.
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