Chewy’s forward margin trajectory ‘compelling and understated’

Investing.com — Chewy (NYSE: )’s forward margin trajectory is “compelling and understated,” according to analysts at Morgan Stanley.

In a note to clients on Friday, reiterating their “Overweight” rating on the stock, analysts said the online pet food retailer is on a “realistic” path to post core revenue of more than 750 million of dollars in fiscal year 2025, or a margin of more than 6.1%. The grade would be 12 percent above Wall Street consensus estimates, they noted.

Analysts said Florida-based Chewy has shown “strong cost discipline” as well as “excessive” beats on earnings before interest, taxes, depreciation and amortization (EBITDA) so far this year.

They added that they “see increased likelihood that our $53 (~100% upside) lift case forecasts (Chewy) to reach $800M EBITDA in FY25 and >$1B in FY26”.

“Chewy is our preferred name in small- and mid-cap e-commerce businesses,” Morgan Stanley analysts said.

In August, Chewy announced that it had 20 million active customers, while net sales per active customer climbed to an all-time high. The company posted better-than-expected fiscal second-quarter results and said it now expects current-quarter sales of $2.84 billion to $2.86 billion — above FactSet estimates. Chewy also raised its full-year adjusted EBITDA margin guidance to a range of 4.5% to 4.7%. The company’s stock soared at the time.

Fueling much of the business has been Chewy’s monthly subscription plan, which offers US customers pet products such as food and litter through both its website and mobile app. At the start of US trading on Friday, Chewy had a market capitalization of $11.06 billion.

Chewy also drew attention earlier this year when well-known meme stock trader Keith Gill — known online as “Roaring Kitty” — revealed a $245 million bet on the company.