CFRA, a financial research organization, revised its price target for Chewy Inc . (NYSE: NYSE:CHWY), a leading online retailer of pet food and products, raising it to $31.00 from the previous $23.00. The firm has retained its Hold rating on the company's shares.
The adjustment to the price target is based on a blend of valuation metrics, including an 18 times multiple of the forecasted FY 26 EBITDA and 1.2 times the FY 26 enterprise value to sales ratio. CFRA's analysts also increased their earnings per share (EPS) projections for Chewy, setting the FY 25 (January) EPS at $1.06, up from $0.92, and the FY 26 EPS at $1.25, up from $1.01.
Chewy's financial performance in the second quarter was a mixed bag, with earnings of $0.24 per share surpassing expectations by $0.03. The company's revenues reached $2,859 million, marking a 2.6% year-over-year increase, which met analyst predictions. For FY 25, Chewy has maintained its sales forecast but improved its adjusted EBITDA margin outlook to a range of 4.5% to 4.7%, an increase from the previously projected 4.1% to 4.3%.
The company has experienced a notable gross margin expansion, with a 120 basis point increase year-over-year to 29.5%. This improvement is primarily attributed to a shift towards higher-margin categories such as Chewy Health and sponsored advertisements. Additionally, Chewy has benefited from significant operating leverage, especially as more sales are processed through its automated fulfillment centers.
Despite these positive developments, concerns remain regarding the company's net active customer count, which has seen a year-over-year decline for seven consecutive quarters. CFRA anticipates that FY 26 could present a more balanced growth year for Chewy, with expectations that the growth rate of net active customers will align more closely with the growth rate of net sales per active customer.
In other recent news, Chewy's second-quarter performance has been robust, with revenues reaching their upper guidance and a return to positive growth in active customers.
Analyst firms Goldman Sachs (NYSE:GS), Evercore ISI, Morgan Stanley (NYSE:MS), Piper Sandler, and Baird have maintained or upgraded their ratings on Chewy, with varying price targets.
Its EBITDA for the quarter exceeded market expectations, primarily due to a stronger gross margin influenced by factors such as advertising and a shift toward premium product offerings.
The company also revised its fiscal year 2024 EBITDA forecast upwards for the second time this year, setting the new target between 4.5% and 4.7%.
Despite showing signs of recovery and momentum with its active customer base, Chewy chose to maintain its fiscal year revenue growth outlook at a 4-6% year-over-year increase.
Additionally, Chewy announced key strategic initiatives, including Autoship, its advertising business, mobile application, Vet Care clinics, Chewy Plus, and expansion into Canada. These ventures are reportedly meeting or surpassing internal expectations. Chewy also executed $533 million in share buybacks during the second quarter.
InvestingPro Insights
Chewy Inc. (NYSE:CHWY) has been the subject of financial analysis and price target revisions, reflecting its dynamic position in the market. As of the last twelve months as of Q1 2023, Chewy boasts a robust market capitalization of $13.04 billion, underscoring its significant presence in the online retail space for pet products. Despite trading at a high P/E ratio of 156.08, which indicates a premium valuation, analysts are optimistic about the company's future, expecting net income growth this year, as noted in one of the InvestingPro Tips. This optimism is further supported by the company's ability to hold more cash than debt on its balance sheet, a sign of financial prudence and stability.
Moreover, Chewy's revenue growth over the past year has been steady at 7.19%, with gross profit margins maintaining a healthy level of 28.68%. The company's strategic focus on higher-margin categories and automated fulfillment centers has contributed to this strong performance. However, the high valuation multiples, such as a Price/Book ratio of 17.54, suggest that investors are pricing in expectations of robust future growth and profitability. According to InvestingPro, there are an additional 11 tips available, providing investors with a comprehensive analysis of Chewy's financial health and market potential.
Investors considering Chewy's stock will find these insights particularly valuable as they weigh the company's current valuation against its growth prospects and financial health. For those seeking more in-depth analysis, further InvestingPro Tips can be found on the platform, offering a deeper dive into Chewy's market performance and future outlook.
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