Evercore ISI has updated its outlook on Chewy Inc . (NYSE: NYSE:CHWY), increasing the price target to $29.00 from the previous $22.00, while maintaining an In Line rating for the stock.
The firm acknowledged the mixed financial results for the second fiscal quarter, highlighting the company's improved profitability but expressing concern over its customer growth.
Chewy's second fiscal quarter earnings showed revenue of $2.86 billion, aligning with market expectations and slightly surpassing Evercore ISI's forecast. The company reported a record high gross margin of 29.5% and EBITDA of $145 million, both figures exceeding the predictions of Evercore ISI and other analysts.
Chewy also saw a marginal quarter-over-quarter increase in active customers, reaching 20 million, which was a modest improvement over both Evercore ISI and street estimates.
Despite these positive indicators, Evercore ISI pointed to a slowdown in revenue growth, which decelerated from 3.1% year-over-year in the first fiscal quarter to 2.6% in the second fiscal quarter, marking the slowest growth in Chewy's history. The guidance for the third fiscal quarter suggests a slight uptick in growth to 3-4%, with the fourth fiscal quarter expected to benefit significantly from an additional week.
The company's gross margin saw a significant year-over-year increase of 120 basis points to a record high 29.5%, while the EBITDA margin expanded by 200 basis points to 5.1%. For the full fiscal year 2024, Chewy reiterated its revenue guidance but raised its EBITDA margin guidance from a range of 4.1%-4.3% to between 4.5%-4.7%.
In other recent news, Morgan Stanley (NYSE:MS) has raised its price target for Chewy from $28 to $30, maintaining an Overweight rating, in anticipation of a strong EBITDA margin beat and potential raise in guidance. Piper Sandler has upgraded Chewy to an Overweight rating, citing potential profitability driven by gross margin expansion.
Baird has increased its price target on Chewy shares, maintaining an Outperform rating, while Deutsche Bank (ETR:DBKGn) has kept its Hold rating, predicting a slight year-over-year decline in the active customer base. Argus has downgraded Chewy's stock from Buy to Hold, and Wolfe Research initiated coverage with a Peer Perform rating.
Chewy's second-quarter revenue is expected to be $2.86 billion, with EBITDA projected at $114 million, according to BofA Securities. The company has also made changes to its corporate governance, appointing David Reeder, the current CFO, as the interim Chief Accounting Officer, and electing four new Class II directors. Chewy's revenue has tripled to $11 billion, and it has agreed to repurchase 17,550,000 shares of its Class A common stock.
InvestingPro Insights
Chewy Inc. (NYSE:CHWY) has been under the microscope for its financial performance, and recent data from InvestingPro provides additional context for investors considering the company's market position. Notably, Chewy holds a substantial market capitalization of $13.3 billion, indicative of its significant presence in the e-commerce space for pet products. Despite a high P/E ratio, currently standing at 152.01, the company has demonstrated a strong return over the last three months, with a price total return of 52.93%. This could be reflective of investor confidence in the company's ability to sustain its profitability, as analysts predict Chewy will be profitable this year.
InvestingPro Tips suggest that Chewy's balance sheet is robust, holding more cash than debt, which is a reassuring sign for investors looking for financial stability in their investments. Additionally, with a net income expected to grow this year, there is potential for further financial improvement. However, it's important to note that the company is trading at a high earnings multiple, with a Price/Book ratio of 17.54 as of the last twelve months, which may raise questions about valuation for potential investors. For those interested in a deeper dive into the company's metrics and additional expert analysis, InvestingPro offers a total of 11 tips for Chewy on their platform.
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