On Friday, Piper Sandler affirmed its Overweight rating on Chewy Inc . (NYSE:NYSE:CHWY) with a steady price target of $35.00. The endorsement comes in light of the company's recent announcement of a significant $500 million stock offering by BC Partners.
In a concurrent move, Chewy revealed its intention to repurchase $300 million of its shares from BC Partners, a decision that will decrease the private equity firm's ownership stake from approximately 70% to around 57%, which equates to about 266 million shares.
The reduction of BC Partners' stake in Chewy is perceived as a positive development, as substantial private equity ownership has previously been a point of contention among investors. Chewy's proactive approach in buying back shares for the second time this year is seen as a confidence booster in the company's narrative.
The analyst from Piper Sandler highlighted that addressing the concerns related to private equity ownership and the company's assertive acquisition strategy are beneficial moves for Chewy.
The ongoing discussions about the appropriate valuation multiple for Chewy, a company experiencing low to mid-single-digit top-line growth and EBITDA growth at a multiple of that rate, were also addressed.
The analyst anticipates that emerging trends, such as increased pet ownership, expansion into Canada, and the scaling of veterinary clinics, will contribute to the company's growth. Additionally, the potential for improved profit margins approaching double digits supports the expectation of earnings power exceeding $2.00 in the medium term. Piper Sandler's reiterated Overweight rating underscores their confidence in Chewy's growth prospects and financial strategy.
In other recent news, Chewy Inc. has revealed a series of significant developments. The online pet retailer recently announced a $500 million public offering of its Class A common stock by Buddy Chester Sub LLC, an affiliate of BC Partners Advisors LP. Concurrently, Chewy has agreed to repurchase $300 million of its Class A common stock from the Selling Stockholder, with this repurchase being conditional on the closing of the public offering.
In financial news, Chewy's second-quarter earnings and revenue exceeded expectations, with an EBITDA of $145 million, surpassing Wall Street's forecast of $112 million. The company's net sales also saw a 3% increase, reaching $2.86 billion.
Several analyst notes have been issued following these recent developments. Barclays maintained its target of $34 on Chewy, citing potential for revenue growth, margin expansion, and share buybacks. Goldman Sachs reiterated its Buy rating on Chewy with a price target of $35, while Morgan Stanley maintained an Overweight rating, projecting a higher than consensus EBITDA of $750 million for the fiscal year 2025.
Lastly, Baird raised the stock's price target to $35, acknowledging the company's significant EBITDA that exceeded expectations by approximately 30%. RBC Capital increased the price target for Chewy shares from $24 to $32, citing evidence of category stabilization and improved profit flow-through as positive indicators.
InvestingPro Insights
Chewy Inc. (NYSE:CHWY) is currently navigating a dynamic market landscape, and recent data from InvestingPro provides a more granular look into the company's financial health and market performance. With a market capitalization of $13.01 billion, Chewy's valuation reflects investor confidence, underscored by a P/E ratio of 36.87, suggesting a premium for its growth prospects. The company's revenue growth over the last twelve months, as of Q1 2023, stands at 4.36%, indicating steady progress in its top-line performance. Additionally, Chewy's gross profit margin during the same period is a robust 28.99%, which may signal operational efficiency and a strong competitive position in the pet retail market.
InvestingPro Tips highlight two pertinent factors for potential investors: Chewy holds more cash than debt, which can provide a cushion against market volatility, and net income is expected to grow this year, signaling improving profitability. These tips are particularly relevant as they align with the positive sentiment from Piper Sandler's analysis and the company's recent strategic moves. For those seeking deeper insights, InvestingPro offers more tips on Chewy, including analyses on earnings revisions, valuation multiples, and short-term liquidity concerns.
Investors may also find encouragement in the company's recent price performance, with a strong return over the last three months of 21.18% and an impressive six-month price uptick of 74.18%, as of the end of the previous year. The InvestingPro Fair Value estimate of $33.63 suggests that the stock may have room for growth compared to the current price. As Chewy continues to evolve and expand its market presence, these insights can help investors make informed decisions while keeping an eye on the company's financial trajectory.
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