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Wedbush: Chewy Will Account For Half Of All Pet Industry Sales Growth

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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

DateFirmActionFromTo
Feb 2020RBC CapitalUpgradesSector PerformOutperform
Jan 2020WedbushUpgradesNeutralOverweight
Dec 2019RBC CapitalMaintainsSector Perform

View More Analyst Ratings for CHWY
View the Latest Analyst Ratings

Posted-In: Seth Basham WedbushAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

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