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Chewy Gets Bullish Ratings from Analysts

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The pandemic may have stopped the world in its stride, but there are some businesses that have something to cheer about. One of the companies that has some good numbers to report is the online pet food business, Chewy. They recently announced the results for the fiscal fourth quarter that ended February 2 with a 35 percent hike in its revenues.

The company posted revenue of $1.35 billion, well within its guidance range of $1.33 billion to $1.35 billion. After adjusting for EBIDTA, the company’s losses were $5.8 million, much lower than the consensus forecast of $20 million.

The company has confidence in its performance, and in line with that, it announced a guidance value for the next quarter much above the Wall Street estimate. Chewy forecast revenue of $1.5 billion to $1.52 billion, ahead of the consensus at $1.45 billion. Though the company has withdrawn its guidance for the rest of the year, a prudent move, in the wake of the uncertainties of the pandemic that has spread all over the globe bringing all kinds of economic activities to a halt.

Not surprisingly, demand for pet food has gone up, and Chewy said it has seen an acceleration in sales since the start of the current crisis, and so far has seen no disruptions in its operations. This may be a result of people staying more at home and the pets getting the full attention of their owners. With people unable to go out and buy food for the pets, most have turned online for supplies.

Chewy sells everything for pets on its website, including food, toys, treats, vitamins, and supplements. Net sales were up 7.8% year over year and this is expected to improve based on the stay at home environment. 

The company is also planning to add additional staff to meet the rising demand. 

Chewy stock was up 20% year-to-date through April 2. On Friday closing it dropped down to $33.60, perhaps because investors were expecting more from the guidance.

CEO Sumit Singh said in his statement:

 “While 2019 closed on a high note, and 2020 got off to a strong start, the world changed dramatically with the coronavirus outbreak. In times like these, we know how special and comforting the bond is between humans and pets, and we devote ourselves every day to supporting those special relationships. We are here, 24/7, caring for the safety and well-being of our team members and meeting the increased shop-at-home needs of our customers, staying true to our mission of being the most trusted and convenient online destination for pet parents everywhere.” 

Analysts are still positive about the stocks of Chewy. Generally, e-retailers are getting a buy rating as online sales have gone up. Almost all analysts like JPMorgan, RBC Capita and more have given the stock buy-in target of $40.

J.P. Morgan’s Doug Anmuth upped his stock target from $38 to $43.

Anmuth thinks the company is well placed in the current scenario, with 70% of sales coming from subscription, low supply chain risk, and high exposure to consumables.

RBC Capital’s Mark Mahaney maintained his Outperform rating on Chewy shares, lifting his price target to $40, from $38.

“In this crisis, there are very, very few beneficiaries,” he said, reports Barron. “But online shopping, especially of consumer staples and necessities such as pet products, is almost surely one of those.”

According to him, the company has a most resilient business model, It has a large market of about $100 billion, and at the moment it has not addressed even a minuscule part of it.

Another analyst, Instinet’s Mark Kelley, also gave Chewy a buy rating and ut the stock target at $40.

“As expected, the company is seeing a positive impact from Covid-19 with more people under quarantine opting to buy necessities online (they saw a broad-based uptick in late February that remains today), which equated to a better top-line outlook for the first fiscal quarter vs. expectations,” he writes. “Even outside of the one-time uptick from Covid-19, we view the quarter and road map for the year as evidence that the company continues to execute against its long-term.”

 Wells Fargo's Brian Fitzgerald has an overweight rating for the stock and a $45 target for it. But he says that the company may face pressure to maintain margins with the demand going up for consumables and the company forced to shift to that. Also, hiring additional staff will add to the company’s capital flow.

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