4 Analysts Agree Chewy Is A 'Good Boy' Stock After Q3 Print

The online pet supplies retailer Chewy Inc CHWY reported third-quarter results Monday that came in better than expected in nearly every respect. Multiple Street analysts were encouraged by the print and the company's outlook.

Instinet Reviews Chewy's Q3 

Chewy reported 40% year-over-year growth in revenue to $1.23 billion, while the percentage of revenue from Autoship rose from 69.3% last quarter to 70.4%, Instinet analyst Mark Kelley said in a Tuesday note.

Other important metrics include a 33% increase in active customers to 12.7 million, while TTM sales per active customer rose 11% to $360.

Company-wide gross margins rose 410 basis points from last year and 13 basis points sequentially, the analyst said.

The pharma business also showed a 650-basis-point year-over-year improvement in margins, and the pharma business was profitable at the order level, Kelley said. 

"All in all, we believe 3Q numbers are another example of solid execution." 

Wells Fargo: 4 Positive Takeaways, 1 Concern

Chewy's "solid" third-quarter report was highlighted by four key positive takeaways, Wells Fargo analyst Brian Fitzgerald said in a Tuesday note. They are:

• Autoship customer sales grew 49% from last year to $865 million.
• The gross margin improved from private brands and Pharmacy, which benefited from MAP discipline and improved logistics costs.
• Private brand sales accounted for a double-digit share of sales across several consumable and hard goods categories.
• Over the longer-term, Rx can contribute up to 500 basis points of gross margin improvement.

One key concern needs to be highlighted, the analyst said.

Active customer growth slowed from 39% in the second quarter to 33%, as SG&A operating expenditures could be limiting management's ability to more aggressively acquire customers, Fitzgerald said. 

Related Link: Morgan Stanley Buys Chewy As Pet Ownership, E-Commerce Grow

BofA Sees Growth Ahead For Chewy 

Chewy's predictable business model is likely to result in future earnings reports coming in better than expected, Bank of America analyst Nat Schindler said in a Tuesday note.

The company could also show upside from improving customer personalization, pharma and private label initiatives, the analyst said. 

Looking forward to 2020, BofA revised its full-year revenue estimate from $6.147 billion to $6.193 billion.

"We see potential for improving sentiment as Chewy continues to pour cold water on competitive worries and the lockup expiry will soon be in the rear view mirror," Schindler said. 

Credit Suisse: Chewy Has Attractive Valuation

Shares of Chewy have fallen more than 30% since its mid-June IPO, but could regain momentum, as Monday's report shows evidence of "robust" customer and sales growth, Credit Suisse analyst Erin Wilson Wright said in a Monday note.

The stock is trading at an attractive valuation of just 1.6 times 2020 EV/sales, which is a discount to its peer group of e-commerce platforms at 4.6 times and animal health products and services peers at 3.4 times, the analyst said. 

"We maintain our positive bias on the stock with conviction in CHWY's faster-than-industry growth and meaningful profit margin ramp," she said. 

Ratings, Price Targets

• Instinet maintained at Buy, $36 price target.
• Wells Fargo maintained at Overweight, $40 price target.
• BofA maintains at Buy, unchanged $40 price target.
• Credit Suisse maintained at Outperform, $29 price target.

Chewy shares were up 5.79% at $25.57 at the time of publication Tuesday.