Does Chewy Deserve A Treat After Q1 Print? The Street Debates

The online store for "pet parents" Chewy Inc CHWY reported Tuesday with first-quarter results highlighted by 46% revenue growth and record new active customer adds. Here's how the Street reacted.

The Chewy Analysts

UBS analyst Eric Sheridan maintains a Neutral rating on Chewy's stock with a price target lifted from $45 to $49.

BofA Securities Nat Schindler maintains at Buy, price target lifted from $47 to $60.

Raymond James analyst Aaron Kessler maintains at Market Perform.

UBS On Chewy's Positives, Negatives

Chewy reported yet another quarter that came in better than the Street's estimates, Sheridan said in a note. The analyst named five key positives from the print:

1. Strong growth in active customers and net sales per active customers helped drive the company's first quarter of positive adjusted EBITDA.

2. Chewy's second-quarter and 2020 revenue were guided above the Street's estimates.

3. Private label contributed to gross margin.

4. Marketing efficiency was driven by strong organic traffic and lower input costs.

5. Autoship accounted for nearly 68% of sales in the quarter.

Sheridan's negative takeaways were:

1. Growing demand resulted in incremental freight and logistic costs that led to a 120-basis-point drop in gross margins.

2. COVID-19 related costs will continue into the second quarter.

BofA Sees 'Promising' Customer Behavior In Chewy's Results

Chewy added more than 1.5 million new customers in the quarter as pet owners rushed to stockpile products, Schindler said in a note.

Despite near-term catalysts, there are plenty of reasons to remain optimistic that long-term growth trends can be sustained, the analyst said.

For example, pet profile creations in the quarter point to a "significant" mix of new pets that are likely long-term customers, he said.

The gross margin was down 70 basis points quarter-over-quarter, but would have been 120 basis points higher if it weren't for supply chain and logistical hurdles, Schindler said.

RayJay Says Chewy's Guidance Conservative

Chewy's management guided its second quarter revenue to be 40% to 42% higher year-over-year at $1.62 billion to $1.64 billion and $6.55-$6.65 billion for the full year, Kessler said in a note.

The guidance for the back half of 2020 looks to be conservative, as it implies a 30% year-over-year growth rate in the back half of the year, the analyst said.

Despite a positive stance on the company's outlook in a growing market, Kessler said the stock looks "fairly valued."

Shares are trading at around 2.5 times 2021 EV/revenue and 10 times 2021 EV/GP versus a peer group average of seven times, according to RayJay.