Chewy Gains as Rosy Sales View Takes Aim at Valuation Fears
Chewy Gains as Rosy Sales View Takes Aim at Valuation Concerns
(Bloomberg) -- Chewy Inc.’s better-than-expected forecast drew positive commentary on Wall Street but wasn’t enough to shake concerns about valuation.
The online pet store’s first earnings report as a public company showed it is continuing to grow at a robust pace, with sales expectations that topped analyst estimates. At the same time, a 53% run-up since the initial public offering in June has raised questions about the durability of growth and increasing competition from larger retailers.
The shares rose as much as 3% in New York on Friday.
Here’s what Wall Street is saying:
William Blair, Dylan Carden
Chewy’s forecast for the second quarter and full year support upside to sales and in-line Ebitda margins.
“Given the proximity to the company’s recent IPO, it is unsurprising to see performance in line with to slightly better than expectations.”
William Blair sees Chewy as “uniquely levered to accelerated channel migration in the pet industry,” and expects improving margins to continue to drive the shares higher.
Rates outperform
RBC Capital Markets, Mark Mahaney
Fundamental trends were mixed in the quarter with slowing revenue growth and improving gross margins and Ebitda loss. RBC sees the 45% jump in active customers versus the prior-year period as “robust” and “a key indicator of the overall health of Chewy’s business.”
Sector perform, price target $37
Morgan Stanley, Brian Nowak
The forecast underscores “business momentum and ability to profitably scale.”
Equal-weight rating largely reflects valuation and durability of the multiple. Price target raised to $34 from $33.
Jefferies, Brent Thill
The second-quarter revenue forecast came in above estimates “but still appears relatively conservative” in terms of sequential growth. The full-year forecast was also above estimates but “still represents a sizable moderation in growth.” Jefferies wouldn’t be surprised if management “is taking a pragmatic approach to guidance” to allow for further earnings upside.
While Chewy could deliver more “beat and raises” that cause the shares to outperform in the near term, Jefferies said it’s relatively more excited by other internet stocks due to concerns about competition from larger-scale retailers like Amazon.com Inc. and Walmart Inc., and the lack of owned intellectual property.
Hold rating, price target raised to $36 from $35
What Bloomberg Intelligence says
Chewy’s fiscal 2019 sales guidance assumes robust growth will persist, which we think is likely given the strength of 1Q sales and commentary from Amazon.com about pet supply sales on Prime Day. Loyal customers and private label (5% of sales) fuel confidence in Chewy’s eventual profitability, as they drive incremental margin.
-- Seema Shah, retail analyst
-- Click here for the research
To contact the reporter on this story: Catherine Larkin in Chicago at clarkin4@bloomberg.net
To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Steven Fromm, Tatiana Darie
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