On Monday, Mizuho Securities updated its financial outlook for online pet retailer Chewy Inc . (NYSE:CHWY), raising the price target to $20.00 from the previous $18.00. The firm has decided to maintain a Neutral rating on the shares despite the adjustment.
The revision in the price target by Mizuho comes after Chewy reported a strong first quarter and provided updated guidance for the fiscal year 2024. The firm's analysts have revised their revenue and EBITDA estimates for Chewy, taking into account the company's recent performance and prospects.
Chewy's introduction of a $500 million share repurchase program has been factored into Mizuho's updated financial model. The analysts anticipate that Chewy will be actively purchasing shares in the market during the second quarter. The buyback initiative is expected to have a positive impact on the company's financial metrics.
Mizuho now projects that Chewy will achieve an adjusted EBITDA of $484 million in the fiscal year 2024, an increase from the previously estimated $448 million. Looking further ahead, the firm forecasts an adjusted EBITDA of $552 million for fiscal year 2025, up from the earlier projection of $525 million, and $643 million for fiscal year 2026, slightly down from the earlier estimate of $645 million.
The new price target of $20 is based on a valuation of 15 times the estimated adjusted EBITDA for fiscal year 2025, which marks an increase from the prior multiple of 13 times. This valuation adjustment reflects Mizuho's updated expectations for Chewy's financial performance in the coming years.
In other recent news, Chewy Inc. has been the focus of several analyst updates following its first-quarter earnings report. Evercore ISI raised its price target for Chewy to $22, citing revenue that slightly exceeded projections and gross margin and EBITDA that were significantly above expectations. Piper Sandler also increased its price target to $22, basing the adjustment on the company's strong first-quarter EBITDA and revised EBITDA forecast for the year.
RBC Capital raised its price target to $24, noting the company's strong gross margins and the initiation of its inaugural share repurchase program. Morgan Stanley increased its price target to $28, highlighting the company's significant EBITDA outperformance and the announcement of its inaugural buyback program. Deutsche Bank lifted its price target to $20, pointing to better-than-expected revenue and a significant EBITDA outperformance for the first quarter.
These updates come as Chewy reported several strong points in its first-quarter performance, including a record-high gross margin, a record-high EBITDA margin, robust Autoship sales, and consistently positive free cash flow.
Despite a slight decline in active customers, Chewy's revenue for the second quarter is expected to match Wall Street forecasts, and the company has reiterated its revenue guidance for the full fiscal year 2024. Chewy has also improved its FY24 EBITDA margin guidance, raising the midpoint from 3.8% to 4.2%.
InvestingPro Insights
Mizuho Securities' updated price target on Chewy Inc. aligns with the company's recent financial performance and forward-looking initiatives. Adding to the analytical depth, InvestingPro data and tips provide additional insights for investors. Chewy's market capitalization stands at $9.92 billion USD, and despite a high P/E ratio of 118.51, the company holds a promising revenue growth of 7.19% over the last twelve months as of Q1 2023. These figures underscore the company's substantial market presence and its potential for growth.
From an operational standpoint, Chewy's gross profit margin remains healthy at 28.68%, reflecting efficient management of costs relative to revenues. Two key InvestingPro Tips for potential investors include Chewy's strong cash position, holding more cash than debt on its balance sheet, and the anticipation of net income growth this year. These factors suggest a robust financial structure and positive outlook, potentially validating Mizuho's revised price target.
For those interested in a deeper analysis, InvestingPro offers additional tips on Chewy, including analysts' earnings revisions and profitability predictions. To explore these further, investors can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, where 13 more tips are available, providing a comprehensive view of Chewy's financial landscape.
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