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Chewy's $14 Billion Valuation May Discourage Analysts

Chewy's $14 Billion Valuation May Discourage Analysts

(Bloomberg) -- Chewy Inc.’s successful, up-sized initial public offering June 14 may deter underwriters from starting coverage with “buy” ratings as the pet supply e-tailer now garners a market capitalization of nearly $14 billion.

Chewy shares rose as much as 88% from the offering price of $22 per share in its debut last month. The shares ended their first day at $34.99, giving the company a market value of about $13.95 billion. The stock most recently traded at about $34.

Wall Street initiations are likely to start arriving on Tuesday, when a 25-day quiet period expires for analysts at the banks that underwrote Chewy’s IPO. That includes analysts at Morgan Stanley, JPMorgan and Allen & Company, which acted as joint lead bookrunning managers for the offering. BofA Merrill Lynch, Barclays Capital, BC Partners, Jefferies, RBC Capital Markets, UBS and Wells Fargo were also joint bookrunning managers. Nomura Securities International, Raymond James and William Blair & Co. acted as co-managers.

The stock’s surge has already prompted one Wall Street analyst to limit his initial rating on the stock to neutral. Seth Basham, an analyst at Wedbush, which did not participate in the IPO, told clients in June that while he liked the company’s long-term growth outlook, the stock had already surged above his $30 price target. He added that the company is seeing “rapid growth” in a “relatively stable sector that is quickly shifting online,” but “we are cognizant of Amazon’s ability to fight back.”

Chewy's $14 Billion Valuation May Discourage Analysts

Meanwhile, downside options were active, led by the July $30 puts. Data tracked by analytics firm TradeAlert shows 75% changing hands on the offer side and total options volume jumping to over 4 times the 20-day average.

The anticipated coverage initiations will come ahead of the company’s quarterly earnings report on July 18.

--With assistance from Gregory Calderone.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Morwenna Coniam

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