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TD Cowen assumes Chewy stock coverage at Buy, shares up

Published 10/09/2024, 09:02 AM
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Investing.com -- TD Cowen on Wednesday started coverage of Chewy (NYSE:CHWY), an online retailer specializing in pet products, with a Buy rating and a price target of $38.

Chewy's shares rose 2% in premarket trading. 

The bank’s analysts expect Chewy to achieve approximately 9% annual revenue growth from fiscal year 2024 to fiscal year 2029. This growth projection is coupled with an anticipated expansion in EBITDA margins from 4.6% to 8.0% and strong free cash flow conversion during the same period.

The firm's top five proprietary analyses revealed several key points supporting Chewy's growth narrative.

1) Chewy currently holds a 7.9% share of the U.S. pet industry market, with forecasts indicating an increase to 8.7% by 2028.

2) If Chewy maintains its share of U.S. pet e-commerce, its growth is expected to surpass management and consensus estimates.

3) TD Cowen’s proprietary survey data indicated year-over-year and quarter-over-quarter increases in purchasers during the third quarter of 2024 to date.

4) The survey also suggested that Autoship customers, who represent 50% of monthly purchasers, spend 3.5 times more on the platform compared to non-Autoship customers.

5) Lastly, analysts said 67% of pet owners still conduct the majority of their pet product purchases in physical stores.

TD Cowen projects the U.S. pet industry to grow from $144 billion in 2023 to $192 billion by 2028, a compound annual growth rate (CAGR) of approximately 6%. E-commerce penetration in the pet market is also expected to increase from 36% in 2023 to around 45% by 2028.

“Thus, the pet eCommerce industry should grow at a ~10% CAGR from '23-'28. We expect Chewy to maintain its share of pet eCommerce, while taking share in the industry overall,” analysts wrote.

For fiscal year 2024, TD Cowen forecasts Chewy's total revenue to reach $11.8 billion, a 5.9% year-over-year increase and at the upper end of the company's guidance range of $11.6 billion to $11.8 billion. This growth is driven by Autoship revenue of $9.2 billion, marking a 9.0% year-over-year increase.

The number of active customers is expected to grow in the second half of 2024, reaching 20.7 million in the fourth quarter as product improvements and favorable market dynamics contribute to a recovery.

EBITDA for fiscal year 2024 is projected at $549 million, with margins expanding to 4.6% due to leverage in cost of goods sold (COGS) and selling, general, and administrative expenses (SG&A).

Long-term, total revenue is forecasted to rise at an 8.6% CAGR from 2024 to 2029, driven by growth in active customers, continued strength in Autoship, rapid growth in Chewy Health, and the emerging advertising business.

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