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In a note discussing e-commerce firms, Morgan Stanley analyst Lauren Schenk said that Farfetch (NYSE:FTCH) and Chewy (NYSE:CHWY) may have bottomed.
Schenk said that while select e-commerce names appear de-risked from a valuation and estimate perspective, they still think it’s still too early to step in on most. However, they identified which “eComm stocks may have bottomed/look more attractive (FTCH, CHWY).”
“Over the last few months we’ve seen increasing signs of both 2H macro and micro slowdowns,” said the analyst. “As a result, we lowered our macro eCommerce forecast to ~8%/10% for 22/’23 e-commerce growth. However, consumer spending weakness has been concentrated in discretionary low-to-middle income purchases thus far – apparel, home goods, home furnishings, electronics, etc. where retailers over ordered inventory and demand is slowing.”
“Many of the companies in our coverage were COVID beneficiaries and share a similar set of attributes that are being penalized by the market: decelerating growth, tough comps, and share give back/reversion. These factors, combined with rising inflation and higher interest rates, make forecasting ‘22/’23 a difficult exercise,” added Schenk.
Morgan Stanley models SMID eCommerce players’ 4-year CAGRs to decelerate by ~600 bps, on average, in 2H22 vs. 1H22, even though on a one-year basis, it implies second-half acceleration for some names, including Chewy, Wayfair (NYSE:W), and Peloton (NASDAQ:PTON).
“In eCommerce, we like FTCH for its lower inventory risk, reset numbers, accelerating ’23 GMS growth, and higher income exposure which tends to be more resilient in a downturn, and CHWY for investors with longer-term horizons given recent performance vs. fundamentals, consumables exposure, strong cohort economics, and secular growth.”
