On Thursday, Piper Sandler adjusted its outlook for Chewy Inc . (NYSE:NYSE:CHWY), reducing the price target to $19 from $21 while maintaining a Neutral rating. The revision follows Chewy's fourth-quarter results, which aligned closely with expectations.
"While the 2024 outlook on EBITDA margin was much better than expected, the revenue growth outlook remains uninspiring (2%-4% absent an extra week) given the weak industry backdrop with declining pet adoptions," said the analyst.
Chewy is shifting its focus toward improving margins and free cash flow generation, a common trend among e-commerce companies. The firm is equipped with a significant cash reserve, boasting $1.1 billion in net cash on its balance sheet. Chewy has indicated plans to announce a strategy for returning cash to shareholders in the upcoming quarter. However, the sales outlook for 2024 is considered somewhat optimistic, as it hinges on an acceleration of sales growth in the second half of the year.
The methodology behind the new price target involves projecting sales into 2025 and applying a reduced multiple, from 0.7x to 0.6x. This adjustment reflects the tempered sales outlook and limited visibility over the next two years. Chewy's strategy and financial positioning suggest a cautious approach in a market that is currently facing headwinds, particularly in the pet sector. The company's announcement regarding shareholder returns is anticipated to provide further insight into its capital allocation strategy.
InvestingPro Insights
Amidst the market's cautious stance on Chewy Inc. (NYSE:CHWY), the latest data from InvestingPro sheds additional light on the company's financial health and market valuation. Chewy's market capitalization stands at a robust $7.65 billion, reflecting its substantial presence in the e-commerce space. Despite recent price fluctuations, analysts are optimistic about Chewy's profitability, with an expectation for net income growth this year. This aligns with the company's strategic shift towards margin improvement and cash flow generation.
However, investors should note that Chewy is currently trading at a high earnings multiple, with a P/E Ratio of 651.85. This valuation suggests that the market has high expectations for the company's future earnings growth. Additionally, with a Price / Book ratio of 19.45 as of the last twelve months leading up to Q3 2024, the stock is trading at a premium compared to the book value of its assets. This may be indicative of investor confidence in the company's long-term strategy and brand value.
An InvestingPro Tip worth considering is that Chewy holds more cash than debt on its balance sheet, which may offer a cushion against market volatility and provide flexibility for future growth initiatives. Moreover, the company's share price has experienced a significant decline over the past year, which could present a buying opportunity for investors who are bullish on the company's long-term prospects. For those interested in a deeper analysis, InvestingPro offers additional insights, including 10 more InvestingPro Tips for Chewy, available at https://www.investing.com/pro/CHWY. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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