On Thursday, Guggenheim maintained a Buy rating on Chewy Inc . (NYSE:CHWY) and increased the price target to $36 from the previous $34.
The decision comes after the company's third-quarter operating results for 2024 surpassed expectations, with a notable 0.8% quarter-over-quarter increase in active customers. This marks the most significant performance since the fourth quarter of 2021 and paves the way for potential positive year-over-year growth in the fourth quarter.
Chewy's management plans to continue investing in marketing strategies, such as full-funnel audience expansion, which is expected to impact the company's fourth-quarter adjusted EBITDA margin. Despite this, Guggenheim expresses strong confidence in Chewy's incremental adjusted EBITDA margin outlook for 2025 and beyond.
The optimism is further bolstered by several factors, including the growth of sponsored ads penetration, which reached approximately 1% during the third quarter, improved sales trends in hardgoods, positive feedback from the Chewy+ paid membership pilot program, and encouraging initial results from the Vet Care clinics. These elements contribute to the belief in a broad-based sequential improvement into and throughout 2025.
The firm's analysis suggests that Chewy's strategic initiatives and market positioning will continue to drive growth and profitability in the coming years.
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