Chewy's Margin Trajectory "Compelling and Underestimated" - Morgan Stanley

Chewy's Margin Trajectory "Compelling and Underestimated" - Morgan Stanley

Chewy's forward margin trajectory is "compelling and underestimated," according to Morgan Stanley. The firm reiterated its bullish stance on the pet products retailer, citing its strong fundamentals and long-term growth potential. Morgan Stanley raised its price target on Chewy to $125 from $115, implying a potential upside of over 20% from current levels.

Chewy's Strong Fundamentals

Chewy has a number of strong fundamentals that support its long-term growth potential. These include:

• A large and growing market: The pet care market is a $100 billion industry in the United States alone. Chewy is well-positioned to capture a significant share of this market with its online platform and wide selection of pet products.
• A loyal customer base: Chewy has built a loyal customer base through its excellent customer service and competitive prices. The company's repeat purchase rate is over 90%, which is a testament to the strength of its customer relationships.
• A strong financial position: Chewy is a financially sound company with a strong balance sheet and positive cash flow. The company has also been profitable on an adjusted EBITDA basis for the past several quarters.

Chewy's Long-Term Growth Potential

Chewy has a number of long-term growth opportunities that could drive significant value creation for shareholders. These include:

• Expansion into new markets: Chewy is currently only operating in the United States. The company has the potential to expand into new markets, such as Canada and Europe, which could significantly increase its addressable market.
• New product offerings: Chewy is constantly expanding its product offerings to meet the needs of its customers. The company recently launched a number of new products, such as its own line of pet food and treats. These new products could help Chewy to increase its customer base and drive sales growth.
• Partnerships with other companies: Chewy has partnered with a number of other companies, such as Amazon and Walmart, to offer its products to a wider audience. These partnerships could help Chewy to reach new customers and drive sales growth.

Morgan Stanley's Bullish Stance

Morgan Stanley is bullish on Chewy's stock because of its strong fundamentals and long-term growth potential. The firm believes that Chewy is well-positioned to capture a significant share of the pet care market and drive significant shareholder value creation. Morgan Stanley raised its price target on Chewy to $125 from $115, implying a potential upside of over 20% from current levels.