Chewy Gets A Bite Of Confidence: Morgan Stanley Upgrades To Overweight Despite Market Gloom

Morgan Stanley analyst Lauren Schenk upgraded Chewy Inc CHWY to Overweight from Equal-Weight at a lowered price target of $28 (from $31).

The analyst notes that CHWY has declined more than 50% since mid-July owing to forward customer growth concerns but sees the move as overdone.

Schenk says CHWY is still gaining market share on both a revenue and customer basis and sees an attractive combination of better-than-expected revenue growth and ongoing margin expansion despite a weak pet industry macroeconomics market.

Also, pet food price inflation is cooling quickly (8% in Sept. vs. 15% in Jan), which should limit a further shift from premium to value, and CHWY's hard goods segment returned to growth in Q2, writes the analyst.

Schenk forecasts CHWY’s EBITDA margin of 5% and 10% in FY25 and FY30, driving material FCF generation of ~$450 million, assuming minimal marketing expense leverage from weak lifetime value/customer acquisition cost.

Schenk expects advertising and category mix shifts to drive annual gross margin expansion of ~60bps to 70 bps.

The analyst estimates EPS loss of $(0.06) in Q3 and $(0.01) in Q4 FY23. 

Price Action: CHWY shares are trading higher by 4.20% at $19.36 on the last check Tuesday.

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorEquitiesMid CapNewsUpgradesPrice TargetMarketsAnalyst RatingsTrading IdeasBriefsExpert Ideas
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!