Wedbush: Chewy Will Account For Half Of All Pet Industry Sales Growth
Online pet store Chewy Inc (NYSE: CHWY) is well-positioned to benefit from favorable industry-wide trends and the company can account for half of all pet industry sales growth, according to Wedbush.
The Analyst
Seth Basham upgraded Chewy from Neutral to Outperform with a price target lifted from $30 to $35.
The Thesis
Online pet industry sales could account for 25% of total sales by 2023 as consumers continue flocking towards subscription-type consumables through online channels, Basham wrote in the note. This implies online pet industry sales will grow at a compounded annual growth rate of around 22% over the coming five years. As Chewy continues to establish a dominant position in the online pet space, the company will see outsized benefits.
Meanwhile, Basham said Chewy continues to show favorable company-specific economics, including flattish customer acquisition costs and accelerating revenue per customer. Part of this can be attributed to a successful expansion into the new $5 billion pharmacy pet market.
Looking forward, Chewy's gross margin growth potential of 220 to 520 basis points from 22.8% in the past 12 months is "very reasonable" as a favorable sales mix towards private label sales offers "ample support." The company can also see benefits from better fulfillment cost leverage and SG&A leverage in 2020.
Price Action
Shares of Chewy were trading higher by 1.5% at $28.89.
Related Links:
Benzinga's Top Upgrades, Downgrades For January 27, 2020
4 Analysts Agree Chewy Is A 'Good Boy' Stock After Q3 Print
Latest Ratings for CHWY
Jan 2020 | Upgrades | Neutral | Overweight | |
Dec 2019 | Maintains | Sector Perform | ||
Dec 2019 | Upgrades | Equal-Weight | Overweight |
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