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Deutsche Bank raised Chewy’s (NYSE:CHWY) price target to $50 from $40 per share ahead of its fiscal third-quarter earnings on December 8.
Analysts maintained a Buy rating on the stock, telling investors in a note that they believe active customers have declined year-over-year based on their analysis of third-party user data.
“Our analysis suggests that Active customers declined y/y in F3Q leading to revenues that are closer to low end of the guidance ($2.44- $2.46bn). That said, CPI data for pet category grew 14% y/y in the quarter, up from 10% in the prior quarter, indicating likely strong NSPAC growth for Chewy in the quarter,” wrote the analysts.
They added that with freight and fuel costs declining since the company’s fiscal second-quarter results, they believe gross margins should be biased higher in the near term and into next year.
“Thus, we maintain our gross margin outlook for 2022 and 2023, implying 35bps and 20bps of y/y margin expansion in 2022 and 2023. In addition, our proprietary geolocation data across Chewy’s footprint indicates a swift ramp at Chewy’s growing footprint of automated fulfillment centers with over 100% y/y in the 3Q, supporting SG&A leverage,” continued the analysts.
“All in, we lower FY23 gross profit estimates by ~2% to $3.1bn on the back of our lower revenue estimates, but raise our target multiple from 5.4x to 6.9x given current supportive backdrop for more resilient growth equities. Ultimately our target price is raised to $50 from $40 based upon a target FY23e GP multiple of ~6.9x EV/GP, compared with ETSY‘s current revenue multiple of 5.7x, a reasonable comparison in our estimation,” they concluded.
Chewy shares have gained 1.1% at the time of writing on Monday. However, the stock is down more than 30% this year.
