On Tuesday, Jefferies, a global investment banking firm, raised its price target on Chewy Inc . (NYSE:CHWY) shares to $31.00, up from the previous $26.00, while maintaining a Buy rating on the stock. The firm highlighted Chewy's ability to scale up and achieve greater profitability as a key reason for the price target increase.
Chewy, an online retailer of pet food and other pet-related products, has been showing signs of scaling with a higher flow-through of marginal profit dollars. Jefferies pointed to the company's sponsored ads and operational improvements as essential components of Chewy's recent success. The investment bank also noted the potential for further upside due to Chewy's pet health offerings.
The firm's analysts are optimistic about Chewy's future, citing the company's assets reaching scale and the ramping up of ad revenue. Additionally, they anticipate a positive mix of benefits emerging from the pet health sector of the business. Based on these factors, Jefferies has raised its forecast for Chewy's adjusted EBITDA for the fiscal year 2024 above the company's own guidance.
The revised estimates by Jefferies reflect an 8% increase in out-year numbers for Chewy. The firm's stance is that Chewy is well-positioned to deliver improved earnings even without a corresponding improvement in pet spending trends. The adjustment in the price target suggests confidence in Chewy's performance and strategic initiatives moving forward.
In other recent news, Chewy Inc. has been the subject of a series of analyst updates following its strong first-quarter performance. Barclays (LON:BARC) maintained its Overweight rating on Chewy with a price target of $32, despite a trend of pet surrenders outpacing adoptions. This outlook is supported by the expectation of an eventual upward trend in net additions to pet households. Meanwhile, Mizuho Securities raised its price target for Chewy to $20, taking into account the company's recent performance and prospects, including a $500 million share repurchase program.
Evercore ISI and Piper Sandler also raised their price targets for Chewy to $22, following positive first-quarter results that exceeded expectations. Evercore noted a record-high Gross Margin and EBITDA Margin, while Piper Sandler highlighted the company's strong EBITDA and revised forecast for the year. RBC (TSX:RY) Capital raised its price target to $24, noting the company's strong gross margins and the initiation of its inaugural share repurchase program.
These recent developments come as Chewy reported several strong points in its first-quarter performance, including robust Autoship sales and consistently positive free cash flow. Despite a slight decline in active customers, Chewy's revenue for the second quarter is expected to match Wall Street forecasts, and the company has reiterated its revenue guidance for the full fiscal year 2024. Chewy has also improved its FY24 EBITDA margin guidance, raising the midpoint from 3.8% to 4.2%.
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