CHWY - Chewy pops after Goldman Sachs points to strong growth trends and improved margins

2023-07-17 08:28:51 ET

Chewy ( NYSE: CHWY ) broke higher in early trading on Monday after Goldman Sachs upgraded the online retailer to a Buy rating from its prior rating stance of Neutral. The frim said it sees a more positive risk vs. reward skew for Chewy ( CHWY ) current levels.

Analyst Eric Sheridan and team said they are increasingly positive on Chewy's ( CHWY ) ability to maintain +10%+ topline growth from 2023-2027 driven by a return to more stable customer growth as Chewy laps pandemic-related headwinds and rising revenue cohort trends reflecting pandemic cohorts maturing. Upside optionality on CHWY is also seen in the form of the company's various strategic initiatives like international expansion, sponsored ads, insurance, etc.

"In addition, we see the potential for steady margin expansion over the next 5 years as Chewy scales it private label and healthcare segments at high margins (likely driving gross margin above its long-term target of 25-28%) and as Chewy continues to execute on its supply chain transformation and automating its fulfillment centers. With shares underperforming the S&P by ~1000bps YTD, we view the stock as having an attractive risk/reward profile especially as the company pivots towards a narrative of returning to customer growth (last quarter of lapping pandemic cohort attrition) and as Chewy runs up against long-term margin targets."

Goldman Sachs' 12-month price target on CHWY of $50 is based on an equal blend of EV/Sales applied to the 2024 estimates and a modified discounted cash flow using EV/GAAP EBITDA multiple applied to the 2027 estimates discounted back 3 years.

Chewy ( CHWY ) has 15 Buy-equivalent ratings from Wall Street analysts vs. 12 Hold-equivalent ratings and one Sell-equivalent ratings. The Seeking Alpha Quant Rating on CHWY is Hold due to low marks for momentum and valuation. Seeking Alpha analysts have a consensus Buy rating on CHWY.

Shares of Chewy ( CHWY ) jumped 4.91% premarket to $39.85 vs. the 52-week trading range of $29.10 to $52.88. The online pet retailer now trades back above its 200-day moving average. The relative strength index on CHWY is still over 50 to indicate directional strength.

More on Chewy

• Chewy: Margin Upside Can Drive Stock Higher
• Growth metrics on Chewy
• Relative strength index and moving averages
• Seeking Alpha's Quant Rating for Chewy

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