TD Cowen has initiated coverage on Chewy Inc . (NYSE: NYSE:CHWY), a leading online retailer in the expansive United States pet industry, with a Buy rating and set a price target of $38.
The firm highlighted Chewy's robust retail business and its burgeoning pet health services, which include the largest online pet pharmacy.
Chewy, recognized for its comprehensive e-commerce platform dedicated to pet products and services, is poised for a steady growth trajectory, according to TD Cowen.
The firm projects an approximate 9% annual revenue increase for Chewy from the fiscal year 2024 through 2029. This growth is expected to be accompanied by an expansion of EBITDA margins, rising from the current 4.6% to an anticipated 8.0%.
The firm's analysis suggests that Chewy's financial health will strengthen over the same period, with strong free cash flow (FCF) conversion rates. The positive outlook on Chewy's financials is underpinned by the company's solid position in the $144 billion US Pet Industry, which continues to show resilience and growth potential.
TD Cowen's initiation of coverage with a Buy rating and a price target of $38 reflects confidence in Chewy's ability to capitalize on its market-leading position and to continue expanding its offerings in the pet health segment. Chewy's strategic emphasis on both its retail operations and healthcare services is expected to drive its financial performance in the coming years.
In other recent news, Chewy 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. Chewy's second-quarter earnings and revenue surpassed expectations, with an EBITDA of $145 million and net sales seeing a 3% increase to reach $2.86 billion.
Analyst firms have been closely watching these recent developments. Morgan Stanley maintained an Overweight rating on Chewy, projecting a higher than consensus EBITDA of $750 million for the fiscal year 2025. Similarly, Piper Sandler reiterated an Overweight rating, emphasizing their confidence in the company's growth prospects.
Barclays maintained a $34 target on Chewy, citing potential for revenue growth, margin expansion, and share buybacks. Goldman Sachs sustained its Buy rating on Chewy with a price target of $35, while Baird raised the stock's price target to $35, acknowledging the company's significant EBITDA that exceeded expectations by approximately 30%.
These developments 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. Chewy's active customer base now stands at 20 million, with the Net Sales Per Active Customer (NSPAC) climbing to $565.
InvestingPro Insights
TD Cowen's bullish outlook on Chewy Inc. (NYSE:CHWY) is further supported by recent financial data and insights from InvestingPro. The company's market capitalization stands at $12.3 billion, reflecting its significant presence in the pet care industry. Chewy's revenue for the last twelve months reached $11.31 billion, with a modest growth of 4.36%, aligning with TD Cowen's projection of steady expansion.
InvestingPro Tips highlight Chewy's financial strength, noting that the company "holds more cash than debt on its balance sheet." This solid financial footing supports TD Cowen's expectation of strong free cash flow conversion rates. Additionally, the tip that "net income is expected to grow this year" corroborates the analyst's positive outlook on Chewy's profitability trajectory.
The company's P/E ratio of 35.21 suggests investors are pricing in future growth, which is consistent with TD Cowen's optimistic revenue and EBITDA margin forecasts. Chewy's impressive 60.78% one-year price total return demonstrates strong market performance, potentially reflecting investor confidence in the company's business model and growth prospects.
For investors seeking a deeper understanding of Chewy's potential, InvestingPro offers 11 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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