On Tuesday, Wolfe Research commenced coverage on Chewy Inc . (NYSE:CHWY) stock, assigning a Peer Perform rating to the online pet retailer. The firm expressed skepticism regarding Chewy's potential to ramp up its revenue and Active Customer growth in the foreseeable future.
The analyst noted that despite Chewy's expectations to increase its market share within the relatively stable pet industry, the company faces macroeconomic challenges.
These include a slowdown in household formation with pets and a decline in pet adoption rates, which are likely to dampen industry expansion and reduce the benefits of pricing strategies.
Chewy's near-term revenue growth is anticipated to be subdued due to these industry headwinds. Although Chewy has launched several initiatives aimed at growth, such as veterinary care services, expansion into the Canadian market, pharmacy offerings, sponsored advertisements, and private label products, Wolfe Research does not foresee these ventures significantly impacting Chewy's profit and loss statement within this year.
The valuation range for Chewy's stock has been set between $18 and $32 by Wolfe Research. This range is based on a combination of enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) multiples of 15x to 25x applied to the firm's forecasted FY25 EBITDA, and enterprise value to gross profit multiples of 1.5x to 2.5x applied to their projected FY25 gross profit estimates.
The current trading price of Chewy's shares is at 18.2 times the estimated FY25 EBITDA and 3.0 times the estimated FY25 gross profit. This is notably lower than the company's five-year historical median of 59.0 times EBITDA and 7.0 times gross profit, reflecting the market's adjusted expectations for the company's financial performance.
In other recent news, Chewy Inc. has experienced significant developments. Analyst firm Argus downgraded Chewy's stock from a Buy to a Hold rating, citing a cautious near-term outlook despite the company's substantial financial growth since its initial public offering.
On the other hand, William Blair maintained an Outperform rating, expressing confidence in the company's potential for long-term free cash flow. In contrast, Evercore ISI maintained an In Line rating with a consistent price target of $22.00, noting the increased competition from omni-channel and value sites.
Chewy's financial performance has been marked by a threefold increase in revenue since its market debut, reaching $11 billion, and significant margin expansion. Furthermore, the company has entered into an agreement to repurchase 17,550,000 shares of its Class A common stock, reflecting confidence in its growth strategy.
Influential investor Keith Gill, also known as "Roaring Kitty," disclosed a 6.6% stake in the company, sparking interest among investors. These recent developments underscore Chewy's ongoing business operations and strategic initiatives.
InvestingPro Insights
Analysts at Wolfe Research may have their reservations about Chewy Inc. (NYSE:CHWY), but InvestingPro Tips suggest a more nuanced picture. Notably, Chewy is positioned with more cash than debt, indicating a solid balance sheet that could weather economic challenges. Additionally, the company is expected to see net income growth this year, which could signal an upward trajectory despite macroeconomic headwinds.
From a real-time data perspective, Chewy's market capitalization stands at $11.69 billion, with a high P/E ratio of 137.99 reflecting investor expectations for future earnings. The company's revenue growth over the last twelve months has been modest at 7.19%, and its gross profit margin is healthy at 28.68%. Moreover, recent price movements have been favorable, with a significant return over the last week, month, and three months, suggesting investor confidence may be on the rise.
For investors looking for deeper insights, there are additional InvestingPro Tips available that could provide a more comprehensive understanding of Chewy's financial health and market position. To explore these insights and make informed investment decisions, readers can take advantage of the PRONEWS24 coupon code to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro.
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