Chewy Stock Chases Buy Point Amid Growing Sales Of Pet Supplies – Investor's Business Daily

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Online pet supplies retailer Chewy (CHWY) has been fetching improved sales and earnings lately thanks to the recent surge in ownership of dogs, cats and other animal companions. That has pushed Chewy stock to flirt with a buy point.
With expected sales of $10 billion this fiscal year, Chewy is likely to eclipse privately held PetSmart, its former parent, as the largest pure-play pet retailer in the U.S., Baird analyst Justin Kleber said in a recent note to clients.
“While pet (supplies) was an attractive sector pre-Covid, the pandemic-driven surge in new pet households should fuel even stronger growth over the next several years,” Kleber said. He rates Chewy stock as outperform with a price target of 50.
Chewy stock ended regular session trading Wednesday at 41.20. On Dec. 13, Chewy stock touched a buy point of 45.83 out of a cup-with-handle base. However, it couldn’t hold that level and soon retreated to its 50-day moving average line, a key support level.
On Dec. 8, Chewy delivered a beat-and-raise report for its fiscal third quarter ended Oct. 30. Chewy stock popped 4% on the news.
The Plantation, Fla.-based company earned a penny a share, vs. a loss of 8 cents a share in the year-earlier period. Sales rose 14% year over year to $2.53 billion in the quarter.
Autoship sales accounted for 73% of the company’s sales in the third quarter. The Autoship subscription program sends pet food and other supplies to customers on a regular, scheduled basis.
“Chewy’s third-quarter results showed accelerating double-digit top-line growth, sustained gross margin expansion and solid free cash flow generation,” Chief Executive Sumit Singh said in a news release. “The fact that we are simultaneously driving top-line growth and expanding margins is yet another proof point of our ability to get big fast and get fit fast, regardless of the macro environment.”
He added, “Our results are a clear indication of the resiliency of the pet category and how Chewy’s compelling value proposition of low prices, personalized service, and delivery convenience across a broad selection of products continues to resonate with our customers.”
Chewy had 20.5 million active customers in the third quarter, up 0.6% from the same quarter last year.
Meanwhile, rising pet ownership among millennials has boosted the pet supplies industry, research firm IBISWorld said in a recent report. The Covid-19 pandemic spurred many people to get pets, analysts say.
The U.S. now has 188 million cats and dogs, IBISWorld says. The number is forecast to rise steadily to 196 million by 2028.
Meanwhile, U.S. pet industry sales totaled $123.6 billion in 2021. That was up 19.3% from the prior year, according to the American Pet Products Association. Pet food and treats made up the largest portion of sales at $50 billion, followed by veterinary care and product sales at $34.3 billion.
Chewy’s third-quarter report had many positive elements, Needham analyst Anna Andreeva said in a report. They included improved gross profit margins and resumed customer growth. Chewy also delivered its sixth straight quarter of double-digit gains in net sales per active customer, she said.
Additionally, Chewy has gained significant market share by expanding its product assortment, Andreeva says. The company doubled its assortment of food and other supply items over the past two to three years. It also expanded into the pet health, insurance and veterinary markets. Andreeva rates Chewy stock as buy with a price target of 55.
Evercore ISI analyst Mark Mahaney said Chewy’s third-quarter earnings report made him “incrementally more ‘pawsitive’ ” on the company’s prospects. He rates Chewy stock as outperform with a price target of 55.
In a note to clients, Mahaney said he sees Chewy’s profit margins improving in 2023 as supply chain challenges and cost inflations abate. Chewy also is shifting its business more to higher-margin products and services, he says.
One point of caution, however, is the company’s fourth-quarter revenue guidance, Mahaney says. The midpoint of its sales guidance implies 10.5% year-over-year growth. That would be a deceleration from the third quarter.
The company’s guidance is a sign that “nothing is really recession-proof, not even treats for Fluffy,” he said.
Chewy stock ranks sixth out of 60 stocks in IBD’s internet retail industry group, according to IBD Stock Checkup. It has an IBD Composite Rating of 73 out of 99.
IBD’s Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock’s strengths. The best growth stocks have a Composite Rating of 90 or better.
Chewy stock has an IBD Accumulation/Distribution Rating of B, indicating institutional buying of shares. It has an IBD Relative Strength Rating of 85 out of 99. The Relative Strength Rating shows how a stock’s price performance stacks up against all other stocks over the last 52 weeks.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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12/11/2022 Chewy Cl A sees its Relative Strength Rating enter the elite 90-plus level.
12/11/2022 Chewy Cl A sees its Relative Strength Rating enter the…
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