RBC Upgrades Chewy, Says 2020 Could Be Profitability Inflection Year

Chewy Inc (NYSE: CHWY) could achieve profit breakeven in fiscal 2020 and its long-term fundamentals are both strong and sustainable, according to RBC Capital Markets.

The Chewy Analyst

RBC Capital Markets’ Mark Mahaney upgraded Chewy from Sector Perform to Outperform, with a price target of $38.

The Chewy Thesis

Chewy had already made meaningful progress towards profitability in fiscal 2019, backed by significant gross margin expansion, Mahaney said in the note.

He added that gross margins had been driven by less price discounting in the industry, efficiency gains stemming from its auto-ship option and contributions from new verticals like Private Label and Pharma.

See Also: Wedbush Says Chewy Will Account For Half Of All Pet Industry Sales Growth

The company could achieve breakeven in fiscal 2020 and reinvest any profit it makes into growth initiatives. The analyst mentioned, however, that its “structural climb” towards breakeven would continue to be a catalyst.

Chewy addresses a large market, estimated at $70 billion, and offers a solid value proposition, reflected in its “unusually strong” customer satisfaction survey results, Mahaney said. He added that these factors would enable the company to generate premium top-line growth and material gross margin expansion going ahead.

CHWY Price Action

Shares of Chewy has risen almost 3.08% to $30.16 at time of publication Friday.

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