The Modest Man
**INVESTORS SHOULD BUY SHARES OF UNDERPERFORMING CHEWY, ACCORDING TO GOLDMAN SACHS**
Investment bank Goldman Sachs has advised investors to buy shares of Chewy, the pet supplies e-commerce company, as the company’s earnings outlook improves. Analyst Eric Sheridan upgraded Chewy’s stock to a buy rating from a neutral rating and raised his price target to $50. Sheridan believes that the stock has the potential to rally 31.6% over the next year. Chewy’s shares rose by 4.9% in premarket trading on Monday, and the stock has underperformed the S&P 500 this year, with just a 2.5% increase.
**ATTRACTIVE RISK/REWARD PROFILE AS CONSUMER GROWTH RETURNS AND MARGIN TARGETS ARE MET**
Sheridan views Chewy’s stock as having an attractive risk/reward profile, especially as the company pivots towards returning to customer growth and meets its long-term margin targets. He expects Chewy to achieve at least 10% topline growth between 2023 and 2027, driven by the return of customers and the maturing of the pandemic-driven consumer base. Additionally, strategic initiatives like international expansion and sponsored advertisements are expected to contribute to Chewy’s growth. Sheridan also anticipates margin expansion over the next five years, fueled by the high-margin private-label and health-care businesses, as well as improvements in Chewy’s supply chain and fulfillment centers.
**RAISED FORWARD OPERATING ESTIMATES AND UPCOMING EARNINGS REPORT**
Sheridan raised his forward operating estimates for both revenue and adjusted EBITDA. Chewy is expected to report earnings next month, according to FactSet. The company’s performance will depend on the stabilization of its consumer base and the acceleration of spending rates. Any disruptions to the macroeconomic environment or key product initiatives could have a negative impact on Chewy’s stock.
In summary, Goldman Sachs advises investors to buy Chewy’s underperforming stock as the company’s earnings outlook improves. The stock has the potential to rally 31.6% over the next year, driven by the return of customers and the maturing of the pandemic-driven consumer base. Chewy’s strategic initiatives, such as international expansion and sponsored advertisements, are expected to contribute to its growth. Margin expansion is also anticipated, thanks to the growth of its high-margin businesses and operational improvements. However, the company’s performance could be affected by factors such as the stability of its consumer base, spending rates, and macroeconomic disruptions.
