TD Cowen Takes Coverage on Chewy Shares to Buy, Up by Investing.com

Investing.com — TD Cowen initiated coverage on online pet products retailer Chewy (NYSE: ) on Wednesday with a Buy rating and a $38 price target.

Shares of Chewy rose 2 percent in premarket trading.

The bank’s analysts expect Chewy to achieve annual revenue growth of around 9% from fiscal 2024 to fiscal 2029. This growth projection is coupled with an anticipated expansion of EBITDA margins from 4.6% to 8.0 % and strong free cash flow conversion over the same period. .

The company’s top five proprietary analysis revealed several key points that support Chewy’s growth narrative.

1) Chewy currently holds a 7.9% share of the US pet industry market, with forecasts indicating growth to 8.7% by 2028.

2) If Chewy maintains its share of US pet e-commerce, its growth is expected to exceed management and consensus estimates.

3) TD Cowen survey data indicated annual and quarterly increases in buyers during the third quarter of 2024 to date.

4) The survey also suggested that Autoship customers, who make up 50% of monthly shoppers, spend 3.5 times more on the platform compared to non-Autoship customers.

5) Finally, analysts said 67 percent of pet owners still make the majority of their pet product purchases in brick-and-mortar stores.

TD Cowen forecasts that the US pet industry will grow from $144 billion in 2023 to $192 billion by 2028, a compound annual growth rate (CAGR) of approximately 6%. E-commerce penetration in the pet market is also expected to grow from 36% in 2023 to around 45% by 2028.

“Thus, the pet e-commerce industry is expected to grow at a CAGR of ~10% from ’23-’28. We expect Chewy to maintain its pet e-commerce share while taking share in the overall industry,” the analysts wrote.

For fiscal 2024, TD Cowen expects Chewy’s total revenue to reach $11.8 billion, up 5.9% year-over-year and at the upper end of the company’s guidance range of $11.6 billion dollars to 11.8 billion dollars. This increase is driven by Autoship revenue of $9.2 billion, marking a 9.0% year-over-year increase.

The number of active customers is expected to increase in the second half of 2024, reaching 20.7 million in the fourth quarter, as product improvements and favorable market dynamics contribute to a recovery.

Fiscal 2024 EBITDA is projected at $549 million, with margins expanding to 4.6% due to leverage in cost of goods sold (COGS) and selling, general and administrative (SG&A) expenses.

Long-term total revenue is forecast to grow at 8.6% CAGR from 2024 to 2029, driven by increased active customers, continued strength in Autoship, rapid growth of Chewy Health, and emerging advertising business.