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Goldman Sachs Upgrades Chewy Stock, Expects Earnings Outlook to Improve
Chewy Potential for Growth
Goldman Sachs analyst Eric Sheridan believes that investors should buy shares of underperforming Chewy as the company's earnings outlook improves. He has upgraded the pet supplies e-commerce stock from neutral to buy and raised his price target by $8 to $50. Sheridan predicts that the stock can rally 31.6% over the next year from its current position. Although the stock has underperformed the S&P 500 this year, up only 2.5%, Sheridan views this as an attractive risk/reward opportunity.
Potential Factors for Growth
Sheridan expects Chewy to achieve a minimum of 10% topline growth between 2023 and 2027. This growth will come from customers returning and rising revenue as the pandemic-driven consumer base matures. Additionally, strategic initiatives like international expansion and sponsored advertisements are expected to contribute to Chewy's growth. The company's private label and health care businesses, which operate at high margins, will also play a role in margin expansion over the next few years. Improvements in the supply chain and increased automation at fulfillment centers are predicted to boost margins as well.
Risks to Consider
While Sheridan is optimistic about Chewy's prospects, he acknowledges potential risks. The company's performance could be impacted if the consumer base does not stabilize or if spending rates do not accelerate. Disruptions to the macroeconomic environment or key product initiatives could also negatively affect shares. Investors should stay informed about these factors and monitor Chewy's progress.
"Hot Take" Conclusion: Potential Impact on New Businesses
Goldman Sachs's recent upgrade of Chewy stock and optimistic outlook for its earnings may offer valuable insights for new businesses in the e-commerce industry. The key takeaway from this analysis is the importance of identifying potential growth factors and managing associated risks.
For new businesses seeking to replicate Chewy's success, it is crucial to focus on sustainable customer growth and revenue expansion. Understanding the target market and capitalizing on emerging trends, as Chewy did with the pandemic-driven surge in pet ownership, can be a key driver of growth. Additionally, strategic initiatives such as expanding into new markets and leveraging sponsored advertisements could help attract a broader customer base.
Furthermore, Chewy's success can be attributed to its focus on high-margin businesses, like private label and health care. For new businesses, identifying and capitalizing on niche or high-margin segments within their respective industries can contribute to improved profitability and margin expansion.
However, it is equally important for new businesses to remain vigilant of potential risks. Monitoring consumer stabilization, spending rates, and the macroeconomic environment is crucial to adapt strategies and mitigate potential disruptions. Additionally, keeping a close eye on key product initiatives and ensuring their success can directly impact the business's performance and growth trajectory.
In conclusion, newcomers in the e-commerce sector can draw inspiration from Chewy's journey and the insights provided by Goldman Sachs. By focusing on potential growth factors, managing risks, and staying agile, new businesses can position themselves to capitalize on emerging opportunities and deliver meaningful growth in the highly competitive online market.
Article First Published at: https://www.cnbc.com/2023/07/17/goldman-sachs-says-this-underperforming-e-commerce-stock-can-rally-more-than-30percent-going-forward.html