Chewy Set For Long-Term Growth, Analyst Upbeat With 36% Upside

Wedbush analyst Seth Basham reiterated an Outperform rating on the shares of Chewy Inc CHWY with a price target of $45.
The company noted customer acquisition and retention benefits from the Omicron period in late 2021-early 2022 that led some consumers to reduce in-store shopping, implying outsized churn impact in 4Q22 and 1Q23.
While this leads the analyst to see more downside than upside risk to 1Q23 consensus’ sequential net adds forecast of -20,000, improvement is expected thereafter, including net adds growth in 2H23 and even for the full year 2023.
The analyst noted that the ongoing discretionary demand headwinds and a slowdown in pet adoptions had reduced the pool of customers CHWY (and the rest of the industry) can actively target to join the platform.
While customer growth likely will be subdued in 2023, CHWY sees plenty of room for NSPAC expansion with growth driven by cohort maturation, wallet share initiatives and pricing.
The analyst regards lower demand contributed to much higher customer acquisition costs across the industry, with some channels seeing costs that are 30% - 40% higher than pre-pandemic baselines.
The analyst is optimistic about the profitable growth potential for Chewy, afforded by international expansion, particularly to adjacent markets such as Canada.
Following meetings for investors with CHWY management, the analyst came away incrementally positive on the long-term growth and margin prospects while more clearly seeing transitory challenges that should decrease in the coming months.
Also Read: Chewy's Pet Services Dominance To Fuel Premiumization And Overseas Expansion, Analyst Predicts
Price Action: CHWY shares are trading lower by 2.83% at $33.31 on the last check Monday.

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