Credit Suisse: Chewy Boasts 6 Growth Drivers

Online retailer of pet food, supplies, and health care products company Chewy Inc (NYSE: CHWY) is the largest of its kind in the online space and boasts six growth drivers, according to Credit Suisse.

Benzinga · 11/11/2019 19:10

Online retailer of pet food, supplies, and health care products company Chewy Inc (NYSE: CHWY) is the largest of its kind in the online space and boasts six growth drivers, according to Credit Suisse.

The Analyst

Credit Suisse analyst Erin Wright initiated coverage of Chewy's stock with an Outperform rating and $29 price target.

The Thesis

Chewy is expected to grow total 2019 revenue by 36% year-over-year to $4.8 billion within the $75 billion pet care expenditure market which is growing at a mid-to-high-single digit rate annually, Wright wrote in the initiation note. Chewy can see further growth in the coming years from:

  • A growing trend where pet owners consider their animals a "family member" and are willing to spend more money, especially across e-commerce platforms like Chewy's.
  • Chewy's Autoship initiative accounts for 69% of total sales and this figure should expand to 73% over the next five years. As such, the company will have a more predictable business model with a loyal customer base.
  • Chewy's expansion to health care products in July 2018 represents a higher margin product category.
  • Sales of higher margin private label products grew 136% in fiscal 2018 and accounted for 5% of total 2018 revenue. This metric should rise to 8% over the coming years and help boost profit.
  • Management has a reputation for overseeing "diligent and effective" advertising and marketing campaigns.
  • Management can better leverage its technology, Autoship, private label, and health care products to ramp scale and generate positive EBITDA by the end of 2021 and a profit by the end of 2022.

Price Action

Shares of Chewy were trading flat Monday afternoon.

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