© Reuters Pet Products Company Chewy (CHWY) Fetches ‘Outperform’ Rating as Wedbush Sees Growth
By Louis Juricic
Online pet products company Chewy (NYSE:) climbed Friday morning, rising 4% after the stock was upgraded from Neutral to Outperform by analysts at Wedbush. Wedbush also raised its price target on the stock from $35 to $55, suggesting upside of 25% from Thursday’s close.
Analysts noted that Chewy operates in a sector that should continue to benefit from steady demand in 2023, and they expect customer additions and growth to continue.
They explained, “We forecast 3.5% sector growth in 2023, slightly better than past recessionary periods, driven by wrap-around pricing of 4%+ and partially offset by a likely decline in pet adoptions due to economic pressures. That said, online search interest in the category may have bottomed based on our data, and CHWY should benefit from a return to outsized e-commerce channel growth as the reopening period from the pandemic is now in the rearview mirror.”
Wedbush said it expects acceleration in net adds and continued material improvement in EBITDA margins.
“Indeed, we expect CHWY’s gross customer additions to rise modestly in 2023, helping fuel future growth,” Wedbush analysts said. “Most importantly, we expect FY23 customer churn to sharply moderate (we estimate 5.1m churned vs 6.1 m in FY22) and see a much larger y/ y decrease principally due to a smaller customer retention headwind from FY20- FY21 pandemic cohorts as we detail inside. All in, we now forecast 2023 net adds of +1.03m and ending active customers of 21.6m vs. consensus 21.4m, with more upside than downside risk if CHWY continues to lean into advertising.”
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