On Friday, Deutsche Bank (ETR:DBKGn) adjusted its outlook on Chewy Inc . (NYSE: NYSE:CHWY) stock, raising the price target to $28 from $24 while maintaining a Hold rating on the stock. The adjustment comes as Chewy prepares to announce its F3Q24 earnings on December 4th.
The revised price target reflects a thorough analysis of third-party data sources which offer insights into the pet market's condition, user engagement on Chewy's platform, and the company's market share. These sources indicate a potential uptick in Chewy's revenue, aligning with the higher end of the company's guidance for the third quarter. This revenue growth is reportedly supported by an increase in user growth, as suggested by data from Second Measure customers and SensorTower Monthly Active Users (MAUs).
Despite the positive sales and user trends, there are concerns about the broader pet market. Data points to a slowdown in net pet adoption rates, which could signal a weakening end market in the third quarter. Additionally, Pathmatics data reveals that Chewy has significantly increased its spending on customer acquisition.
In light of these findings, Deutsche Bank has slightly raised its revenue and EBITDA forecasts for Chewy for 2024 and 2025. The bank expects a third-quarter beat and a fourth-quarter guide that could surpass expectations, primarily due to revenue generated from Sponsored Ads. However, the firm remains cautious, citing potential risks to user growth projections for 2025 and adjusted EBITDA expectations, which could be impacted by the increasing costs of acquiring customers.
The new price target of $28 reflects higher adjusted EBITDA estimates and an applied multiple of 18 times the projected 2025 EBITDA. Despite the target increase, the Hold rating suggests that the current valuation represents the upper limit of what Deutsche Bank believes Chewy shares should command, given the anticipated 6% revenue growth in FY25 and the possible downside risks to both customer growth and adjusted EBITDA in the coming year.
In other recent news, Chewy Inc. has been the focus of several analyst firms' attention. BofA Securities upgraded Chewy from Underperform to Buy, highlighting the company's improving performance metrics and potential for growth. This comes alongside Chewy's second-quarter earnings and revenue surpassing Wall Street's forecast, with an EBITDA of $145 million and a 3% increase in net sales, reaching $2.86 billion.
TD Cowen initiated coverage on Chewy with a Buy rating, projecting a steady growth trajectory for the company. Meanwhile, Needham initiated coverage with a Hold rating, citing the company's strong position in the e-commerce sector. Morgan Stanley (NYSE:MS) maintained an Overweight rating, projecting a higher than consensus EBITDA of $750 million for the fiscal year 2025.
In other developments, Keith Gill, also known as Roaring Kitty, liquidated his position in Chewy, according to a recent U.S. Securities and Exchange Commission filing. Chewy also made a $500 million public offering of its Class A common stock by BC Partners Advisors LP, along with an agreement to repurchase $300 million of its stock from the same entity.
These are recent developments that reflect Chewy's strategic focus on customer reactivation, app engagement, health services, and advertising. The company continues to expand its veterinary care services, opening two additional clinics in Colorado and Florida. Currently, Chewy's active customer base stands at 20 million, with the Net Sales Per Active Customer (NSPAC) climbing to $565.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Chewy's financial position and market performance. The company's market capitalization stands at $15.0 billion, with a P/E ratio of 42.49, indicating a premium valuation that aligns with Deutsche Bank's cautious stance.
InvestingPro Tips highlight that Chewy holds more cash than debt on its balance sheet, which could provide financial flexibility as the company navigates the challenging pet market landscape. Additionally, net income is expected to grow this year, potentially supporting the bank's increased EBITDA forecasts.
However, investors should note that Chewy is trading at high earnings and EBITDA valuation multiples, which may limit further upside potential. This observation is consistent with Deutsche Bank's view that the current valuation is approaching its upper limit.
Interestingly, Chewy has shown strong returns over various time frames, with a notable 118.99% price return over the last six months. This performance, coupled with the recent price target increase, suggests that market sentiment has been increasingly positive despite the challenges in the pet market.
For readers seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Chewy, providing a deeper understanding of the company's financial health and market position.
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