Benzinga - by Lekha Gupta, Benzinga Editor.
Morgan Stanley analyst Lauren Schenk upgraded Chewy Inc (NYSE: CHWY) to Overweight from Equal-Weight at a lowered price target of $28 (from $31).
The analyst notes that CHWY has declined more than 50% since mid-July owing to forward customer growth concerns but sees the move as overdone.
Schenk says CHWY is still gaining market share on both a revenue and customer basis and sees an attractive combination of better-than-expected revenue growth and ongoing margin expansion despite a weak pet industry macroeconomics market.
Also, pet food price inflation is cooling quickly (8% in Sept. vs. 15% in Jan), which should limit a further shift from premium to value, and CHWY's hard goods segment returned to growth in Q2, writes the analyst.
Schenk forecasts CHWY’s EBITDA margin of 5% and 10% in FY25 and FY30, driving material FCF generation of ~$450 million, assuming minimal marketing expense leverage from weak lifetime value/customer acquisition cost.
Schenk expects advertising and category mix shifts to drive annual gross margin expansion of ~60bps to 70 bps.
The analyst estimates EPS loss of $(0.06) in Q3 and $(0.01) in Q4 FY23.
Price Action: CHWY shares are trading higher by 4.20% at $19.36 on the last check Tuesday.
Latest Ratings for CHWY
| Mar 2022 | Deutsche Bank | Initiates Coverage On | Buy | |
| Jan 2022 | RBC Capital | Initiates Coverage On | Outperform | |
| Jan 2022 | Piper Sandler | Downgrades | Overweight | Neutral |
View the Latest Analyst Ratings
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