On Thursday, Argus Research upgraded Chewy Inc . (NYSE:CHWY) stock from Hold to Buy, setting a price target of $42.00. The firm highlighted Chewy’s strong growth trajectory since its initial public offering in 2019, noting that the company’s revenue has tripled to over $11 billion. According to InvestingPro data, Chewy now commands a market capitalization of $15.21 billion and has demonstrated strong momentum with an impressive 87% return over the past year. For deeper insights into Chewy’s financial health and growth potential, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro. Additionally, Chewy has seen significant expansion in its gross margin, which has grown by over 800 basis points to 29.3%, while its adjusted EBITDA margin has increased by nearly 1,000 basis points by the end of the fiscal year 2024. InvestingPro analysis reveals that the company maintains profitable operations with positive earnings and expects further net income growth this year.
Chewy, an e-commerce retailer specializing in pet food and related products, has set ambitious yet attainable goals for the next three to five years. These include achieving high single-digit sales growth and an adjusted EBITDA margin greater than 10%. Argus analysts expressed confidence that Chewy is likely to surpass these targets, given its focus on essential pet products and services, which make up about 85% of its revenue.
The company’s autoship service, which accounts for roughly 80% of its revenue, was also praised for providing a stable income stream and aiding in efficient operations management. Argus views the service’s recurring sales as a significant positive for Chewy’s business model.
Moreover, Chewy is currently piloting Vet Care Clinics, a high-margin service that could enhance the company’s pet pharmacy, specialized foods and supplements, and health insurance offerings. The expansion into the Canadian market was another positive factor cited by Argus.
From a technical standpoint, Chewy’s stock has demonstrated a bullish pattern of higher highs and higher lows since April, with InvestingPro data showing a substantial 49.6% price return over the past six months. In terms of fundamentals, the stock currently trades at a P/E ratio of 39.9x, which is considered a high earnings multiple relative to the broader market. The $42 price target suggests a valuation of 34 times the estimated earnings per share for 2025. InvestingPro subscribers have access to 15 additional valuable insights about Chewy’s valuation and growth prospects.
Argus maintains a long-term Buy rating on Chewy Inc., reflecting their positive outlook on the company’s financial health and market strategy.
In other recent news, Chewy Inc. has been the subject of several analyst upgrades. CFRA raised Chewy’s stock rating to Strong Buy, while Mizuho (NYSE:MFG) Securities and Wolfe Research both upgraded the stock to Outperform. These upgrades are backed by Chewy’s robust financial health, highlighted by an annual revenue of $11.4 billion and healthy gross margins of 29.2%.
The company’s largest shareholder, Buddy Chester Sub LLC, initiated a public offering of $500 million worth of Chewy’s Class A common stock. Concurrently, Chewy agreed to repurchase $50 million of its Class A common stock from the selling shareholder.
Chewy’s third-quarter revenue was reported at $2.88 billion, slightly exceeding the consensus of $2.86 billion, largely due to a 9.9% year-over-year increase in Autoship customer sales. However, non-Autoship customer revenue declined by 13.4% year-over-year.
Analysts anticipate that Chewy will see a resurgence in year-over-year growth in net active customers, recovering from a period of stabilization after the initial pandemic-induced surge. Chewy’s financial position is strong, marked by positive free cash flow, an absence of long-term debt, and an ongoing share repurchase program.
These are among the recent developments that have shaped Chewy’s current position in the market.
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