Market Overview

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

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

Chewy Inc (NYSE: CHWY) trades down nearly 32% year to date and 24% from its second-quarter earnings report. One analyst team sees a buying opportunity.

The Rating

Morgan Stanley analysts Lauren Cassel, Brian Nowak and Simeon Gutman upgraded Chewy to Overweight but cut their price target from $34 to $30.

The Thesis

Morgan Stanley considers Chewy one of the best names in the small- to mid-cap Internet category for three reasons.

First, domestic pet ownership is growing, and Chewy competes in a $73 billion domestic industry for staple pet goods.

“We assume CHWY captures [about] 70% of new pet owners and [about] 800,000 existing pet owners (or 1% of existing pet households) on average over the next five years,” the analysts wrote in a report.

Second, brick and mortar businesses continue to cede share to the online pet market, and Chewy could capture 55% of the industry’s incremental eCommerce growth.

Third, the company boasts a “durable” multiple.

“The multiple has compressed by ~25% given concerns around forward revenue, buyer, and profit growth, but we think fears are overdone,” Cassel, Nowak and Gutman wrote. “In addition, part of the pressure has likely been linked to concerns around money losing IPOs ahead of lock ups, but we see CHWY's lock-up date as less of a near-term overhang given the ownership structure (88% of the company still owned by private equity/PetSmart's parent, BC Partners).”

Chewy trades at a multiple similar to those of Revolve Group LLC (NYSE: RVLV), Wayfair Inc (NYSE: W) and Stitch Fix Inc (NASDAQ: SFIX), but Morgan Stanley considers it better positioned with a defensible moat and consistent consumer base.

Price Action

At time of publication, Chwey shares traded up 2.8% at $23.51.

Related Links:

Credit Suisse: Chewy Boasts 6 Growth Drivers

Investors Take A Bite Out Of Chewy's Stock, But The Street Isn't Saying 'Good Boy!'

Latest Ratings for CHWY

DateFirmActionFromTo
Dec 2019MaintainsSector Perform
Dec 2019UpgradesEqual-WeightOverweight
Nov 2019Initiates Coverage OnOutperform

View More Analyst Ratings for CHWY
View the Latest Analyst Ratings

Posted-In: Brian Nowak Lauren Cassel Morgan Stanley Simeon GutmanAnalyst Color Upgrades Price Target Analyst Ratings

 

Related Articles (RVLV + CHWY)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
KHCUBSMaintains31.0
RPAYCantor FitzgeraldMaintains18.0
CMSCredit SuisseDowngrades
PBCTStephens & Co.Maintains15.5
TTECCowen & Co.Initiates Coverage On50.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com