On Friday, Morgan Stanley maintained its optimistic stance on Chewy Inc . (NYSE:CHWY), reiterating an Overweight rating with a stable $33.00 price target. The firm highlighted Chewy's potential for margin growth, projecting a higher than consensus earnings before interest, taxes, depreciation, and amortization (EBITDA) of $750 million for the fiscal year 2025, which is approximately 12% above the consensus estimates.
The analysis by Morgan Stanley suggests that Chewy has a more straightforward route to achieving the $750 million EBITDA target than previously anticipated, identifying multiple areas within the company's cost structure where leverage could be applied. The firm views Chewy as a top pick within the small to mid-size e-commerce (SMID eComm) sector and notes an increased likelihood of reaching a bullish case valuation of $53, with EBITDA forecasts of $800 million to over $1 billion for fiscal years 2025 and 2026, respectively.
Chewy's forward valuation appears more attractive, according to Morgan Stanley, with a $750 million EBITDA potentially reducing the enterprise value to EBITDA (EV/EBITDA) ratio by around two turns. This financial metric is often used to estimate a company's value relative to its earnings power.
The firm also outlined three primary risks that could affect Chewy's margin trajectory: a weakening macro environment for pet-related products, potential increased selling, general, and administrative (SG&A) expenses due to a large-scale veterinary service launch, and an intensifying promotional landscape within the industry. Despite these potential challenges, Morgan Stanley's current assessment maintains a positive outlook on Chewy's financial performance going forward.
In other recent news, Chewy Inc. showcased a robust financial performance with earnings and revenue exceeding expectations. Analyst firms Baird, RBC Capital, Mizuho Securities, and BofA Securities have responded positively to the company's financial results, maintaining their ratings and raising their price targets. The company's EBITDA reached $145 million, surpassing Wall Street's forecast of $112 million. Chewy's second-quarter net sales increased by 3% to $2.86 billion.
Chewy's active customer base stood at 20 million, with the Net Sales Per Active Customer (NSPAC) climbing to $565. A significant 78.4% of the company's sales were attributed to its Autoship subscription service. Chewy continues to expand its veterinary care services, opening two additional clinics in Colorado and Florida.
Despite these positive indicators, some analysts have expressed caution due to valuation concerns, waiting for a significant increase in active customers before adopting a more bullish stance. Chewy has maintained its full-year net sales outlook between $11.6 and $11.8 billion and has upgraded its adjusted EBITDA margin guidance for the year.
InvestingPro Insights
As Morgan Stanley maintains a positive outlook on Chewy Inc. (NYSE:CHWY), several metrics and InvestingPro Tips provide additional context for investors considering the company's stock. Chewy's market capitalization stands at a robust $10.92 billion, reflecting its significant presence in the e-commerce space. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is 30.81 as of the last twelve months leading up to Q2 2025, indicating that investors are willing to pay a premium for its earnings potential.
Importantly, Chewy's net income is expected to grow this year, which aligns with Morgan Stanley's projection of an increase in EBITDA. This expectation is further bolstered by the fact that 8 analysts have revised their earnings upwards for the upcoming period, suggesting a consensus that Chewy's financial performance may exceed prior expectations. Moreover, the company holds more cash than debt on its balance sheet, providing it with financial flexibility. However, it is worth noting that Chewy is trading at a high price/book multiple of 22.49, which may suggest it is valued richly compared to its book value. Chewy's revenue growth for the last twelve months leading up to Q2 2025 stands at 4.36%, indicating steady progress in its business operations.
For investors looking to delve deeper into Chewy's financial health and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/CHWY. These tips include a comprehensive analysis of the company's valuation multiples, profitability, stock performance, and more, providing a more nuanced understanding of Chewy's investment potential.
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