Morgan Stanley has updated its outlook on Chewy Inc . (NYSE: NYSE:CHWY), increasing the price target to $30 from the previous $28 while keeping an Overweight rating on the stock. The firm anticipates a strong EBITDA margin beat and potential raise in guidance during Chewy's second-quarter earnings call on Wednesday. The optimism is based on Chewy's history of conservative guidance and fundamental levers that are not yet reflected in the consensus.
The analyst expects Chewy to slightly exceed top-line revenue expectations. However, the recent 20% increase in the stock price over the past three weeks suggests that investors may already anticipate a positive earnings report and a potential acceleration in the third-quarter guidance.
Despite the positive outlook, there are considerations regarding market dynamics and shareholder composition. Data from the second quarter indicates stable ownership, with adoption data and web traffic showing consistency quarter over quarter. Nonetheless, at the current stock price of $26.70, there are concerns about potential incremental liquidity, especially since the sponsor previously sold shares at $29 and above during the intraquarter period.
In other recent news, Chewy's second-quarter revenue is expected to be $2.86 billion, with EBITDA projected at $114 million, according to BofA Securities.
Chewy has also seen an upgrade from Piper Sandler to an Overweight rating, citing potential profitability driven by gross margin expansion and well-managed discounting strategies.
Furthermore, Baird has raised its price target on Chewy shares, maintaining an Outperform rating, while Deutsche Bank maintained its Hold rating, predicting a slight year-over-year decline in the active customer base. In contrast, Argus downgraded Chewy's stock from Buy to Hold, and Wolfe Research initiated coverage with a Peer Perform rating.
Additionally, Chewy has made changes to its corporate governance, appointing David Reeder, the current CFO, as the interim Chief Accounting Officer, and electing four new Class II directors. The company's revenue has tripled to $11 billion, and it has agreed to repurchase 17,550,000 shares of its Class A common stock.
InvestingPro Insights
As Chewy Inc. (NYSE: CHWY) gears up for its second-quarter earnings call, investors are keenly observing the company's financial health and market potential. According to InvestingPro data, Chewy holds an impressive market capitalization of $11.64 billion, showcasing its substantial presence in the e-commerce space for pet products. This is complemented by a revenue growth of 7.19% over the last twelve months as of Q1 2023, indicating a steady upward trajectory in sales.
InvestingPro Tips highlight that Chewy is expected to see net income growth this year, which aligns with Morgan Stanley's positive outlook on the company's EBITDA margin and potential guidance raise. Furthermore, the company has demonstrated a robust return over the last three months, with a price total return of 61.13%, reflecting investor confidence and market momentum. However, it's worth noting that Chewy is trading at a high P/E ratio of 139.12, suggesting a premium valuation relative to near-term earnings growth.
For investors looking for a more in-depth analysis, there are additional InvestingPro Tips available, which delve into other aspects of Chewy's financial performance and market valuation. These insights can serve as a valuable resource for those considering an investment in the company.
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