Barclays Upgrades Chewy Inc. (CHWY) to Overweight, 'The Dog Days Are Over'
Barclays analyst Trevor Young upgraded Chewy Inc. (NYSE: CHWY) from Equalweight to Overweight with a price target of $30.00 (from $19.00).
The analyst comments "We are upgrading CHWY to Overweight with a $30 PT, implying more than 40% potential upside from here, and highlight the name as one with potential for outsized returns within the challenged e-commerce sub-sector in 2024. We anticipate revenue growth will trough in F1H24 and reaccelerate in the back half as customer growth stabilizes and Canada begins to ramp. We see upside to consensus over the next few years as high-margin advertising (recognized as a contra-COGS) builds both on and off site, while areas such as vet clinics and insurance could drive further positive revisions longer term as those businesses scale. Sentiment remains somewhat washed out and valuation (~15x our FY25E EBITDA) looks attractive, particularly as we expect EBITDA growth to average nearly 30% over the next few years. We acknowledge that this call isn't without risks. Amazon is still gaining share within the pet category, and investors/the pet industry seem a bit dismissive of deflation concerns as new manufacturing capacity comes online. BC Partners will convert its sizable stake to Class A shares over the next five years, and it could begin to sell down its position, potentially creating an overhang on the stock. The new CFO starts next month as well. Net net, with shares hovering around the 2019 IPO price, we see this as a good entry point, particularly as we see CHWY as largely insulated against competition from Temu."
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Shares of Chewy Inc. closed at $19.94 yesterday.