On Tuesday, Piper Sandler adjusted its outlook for Chewy Inc . (NYSE:NYSE:CHWY), reducing the stock price target to $16 from the previous $19, while maintaining a Neutral rating on the stock. The revision follows a semi-annual veterinary survey conducted by the firm, revealing a shift in sentiment within the veterinary community towards Chewy's services.
The survey highlighted an increasing distrust of Chewy among veterinarians, coinciding with a preference for services offered by the company's competitor, Covetrus (NASDAQ:CVET). Concerns have been raised following Chewy's initiative to open its own veterinary clinics, branded as VetCare.
This move has seemingly generated apprehension among veterinarians, potentially impacting Chewy's ability to capitalize on high-margin prescription sales.
The analyst pointed out the mixed outlook for Chewy, acknowledging both strengths and weaknesses in its current business model. On the positive side, Chewy could benefit from sponsored advertisements, the potential to return approximately $1.1 billion of net cash to shareholders, and a potential longer-term increase in pet adoptions.
Still, the company also faces challenges, including a stagnation in the growth of active customers, diminishing pet food price inflation, and concerns related to the ownership structure, given that BC Partners holds approximately 75% of Chewy's shares.
The stock price target adjustment from Piper Sandler reflects a decrease in the expected sales multiple for 2025, down to 0.5 times from the earlier estimate of 0.6 times, due to the less favorable outlook with the veterinary community. This reassessment takes into account the current dynamics and sentiment within the industry, as well as Chewy's strategic moves and market challenges.
InvestingPro Insights
As Chewy Inc. navigates the evolving landscape of the pet care industry, key financial metrics and analyst insights from InvestingPro offer a snapshot of the company's current position. Chewy holds more cash than debt on its balance sheet, which could provide a cushion against market uncertainties. Moreover, the company's net income is expected to grow this year, signaling potential for improved financial health.
InvestingPro Data shows that Chewy's market capitalization stands at $6.83 billion, with a high Price/Earnings (P/E) ratio of 172.5. Despite this high earnings multiple, the company's revenue growth over the last twelve months as of Q4 2024 was 10.17%, indicating a positive trajectory.
Still, the company's high Price/Book multiple of 13.39 suggests a premium valuation compared to its book value. Furthermore, analysts have revised their earnings expectations upwards for the upcoming period, which could be a sign of strengthening business prospects.
For investors seeking more comprehensive analysis and additional insights, there are 11 more InvestingPro Tips available for Chewy Inc. at InvestingPro. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and explore the depth of data that InvestingPro has to offer.
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