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Chewy Lifted to Outperform; Wolfe Sees 'Strong Growth Ahead'

Wolfe Research upgraded Chewy to outperform, saying a drop in net new customer additions should reverse in fiscal 2022.

Chewy  (CHWY) - Get Chewy, Inc. Class A Report on Tuesday was upgraded to outperform from peer perform by Wolfe Research analysts, who see "plenty of strong growth ahead" for the online pet-products retailer.

An analyst team led by Deepak Mathivanan now has a $90 price target, up from $80, on the stock.

At last check, in a broadly down stock market, shares of the Dania Beach, Fla., company fell 2.5% to $68.69.

The investment firm is bullish on the retailer's customer-growth potential in fiscal 2022. 

"We believe the decline in net new customer additions during fiscal year 2021 should reverse in fiscal year 2022," Mathivanan wrote.

Chewy's net customer additions were 300,000 in the fiscal second quarter, compared with an average 1.4 million in every quarter in fiscal 2020, the analysts noted. 

It added that Chewy's net sales per active customer are expected to rise.

"An average Chewy customer currently spends roughly $400 annually," the note says. 

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But net sales per active customer should climb "steadily as customers increase their frequency on the platform. An average pet owner spends approximately $1,150 per year on their pets." 

For the second quarter ended Aug. 1 Chewy posted a loss of 4 cents a share on revenue of $2.16 billion. Analysts were expecting a loss of 2 cents a share on revenue of $2.2 billion.

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Wolfe Research also expects Chewy to exceed its FY 2022 revenue estimates of $11 billion. 

"With less than 10% share of total pet [spending,] ... Chewy still has plenty of strong growth ahead," the analysts said.

"The company’s [total addressable market] is expanding steadily as pet ownership and spending on pets continues to grow. Furthermore, international markets present additional incremental opportunity," the analysts added.

To be sure: Wolfe Research cautioned that if net additions stay flat or continue to moderate, Chewy could see revenue growth steadily slow.