5 Chewy Analysts React To Earnings Miss: 'Stock Still Looks Expensive'

Chewy Inc (NYSE: CHWY) shares rebounded Monday after a sharp post-earnings sell-off on Friday. Wall Street analysts have mixed opinions about whether investors should be buying the Chewy dip.

On Thursday, Chewy reported an adjusted EPS loss of 8 cents per share, missing the analyst consensus estimate of a 4-cent loss. Third-quarter revenue was $2.21 billion, in-line with analyst estimates. Revenue was up 24% from a year ago.

Chewy management blamed the miss on supply chain disruptions, labor shortages and inflation.

Looking ahead, Chewy guided for fourth-quarter revenue of between $2.4 billion and $2.44 billion, slightly below analyst estimates of $2.43 billion. For the full fiscal year, Chewy guided for revenue of between $8.9 billion and $8.94 billion and said it is no longer projecting full-year EBITDA margin expansion from fiscal 2020 levels.

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Show-Me Story Stock: Morgan Stanley analyst Lauren Schenk said Chewy is now a show-me story for investors.

“CHWY issued its first ever guide down on both top-line and margin … but we see these headwinds as transitory,” Schenk wrote.

Bank of America analyst Nat Schindler said Chewy still has growth opportunities ahead beyond the pandemic.

“We continue to see Chewy’s subscription-driven model and recession-resistant segment as appealing and sustainable heading into a post-pandemic world,” Schindler wrote.

Wells Fargo analyst Brian Fitzgerald said Chewy should remain a core e-commerce holding.

“We were encouraged by incremental wallet share gains and improved customer acquisition eciency, as well as the announcement earlier this week of an expansion into the pet insurance market in partnership with Trupanion, and view CHWY's fundamentals and opportunity as very much intact,” Fitzgerald wrote.

Valuation Limits Upside: Raymond James analyst Aaron Kessler said customer demand remains strong, but net subscriber growth was a disappointment.

“While we remain positive on the story, we believe shares are fairly valued at ~7.5x FY22 EV/Gross Profit and believe that risk/reward is balanced at current levels,” Kessler wrote.

Needham analyst Anna Andreeva said the stock “still looks expensive” trading at roughly a 2x updated enterprise value-to-sales ratio.

“CHWY's algo is finding a lower base (implied 4Q21 EBITDA margins are coming down by ~300 bps, we now model EBITDA down ~50% y/y next year) and valuation range needs to readjust Accordingly,” Andreeva wrote.

Chewy Ratings And Price Targets:

• Morgan Stanley has an Equal-Weight rating and lowered the price target from $81 to $74. 
• Bank of America has a Buy rating and $133 target.
• Raymond James has a Market Perform rating.
• Wells Fargo has an Overweight rating and lowered the price target from $110 to $90. 
• Needham has a Hold rating.