Chewy Inc (NYSE:CHWY) stock rose 1.96% (As on November 21, 11:35:06 AM UTC-4, Source: Google Finance) after Bank of America analysts double upgraded the pet retailer stock from Underperform to Buy, while also raising the price objective (PO) to $40 from $24.
BofA’s analysis indicates that despite a year-over-year (YoY) negative trend in pet spending, the adoption rates have been on the rise since the beginning of 2024, suggesting that the worst may be over for the industry. Looking ahead, the analyst cited easier comparisons in the first half of 2025 and insights from a recent pet expert call to support the belief that the industry could return to a consistent low-single-digit to mid-single-digit percentage growth rate. This growth rate is in line with the average 4% year-over-year growth observed from 2011 to 2019, as per Bank of America card data.
Moreover, the upgrade also reflects encouraging company-specific signs, including a significant uptick in Chewy’s web traffic, which has seen a 6% YoY increase in the fiscal third quarter compared to an 11% decline in the first quarter. This growth, according to BofA, “is supportive of share gains & possibly better than expected customer count (key stock metric).”
BofA’s bullish outlook is further bolstered by Chewy’s strong expense management, particularly in selling, general, and administrative (SG&A) expenses, and scaled fulfillment expenses. The shift towards higher gross margin sales, including advertising and health services, is expected to provide an opportunity for significant earnings growth in the coming years.
The bank’s analysts project Chewy’s EBITDA to be $719 million and $917 million for fiscal years 2025 and 2026, respectively, figures that are above the current Street consensus.
“We think investors will be willing to pay a premium for Chewy particularly in the context of persistent discretionary headwinds in eComm,” analysts noted.
The retailer’s subscription-like business model, minimal exposure to discretionary spending categories, and historically consistent trends within the pet sector also help improve its revenue and earnings visibility.
In other recent news, Keith Gill, also known as Roaring Kitty, has liquidated his position in Chewy Inc., according to a recent U.S. Securities and Exchange Commission filing. Following this, several analyst firms have provided their insights on the company’s latest developments.
In terms of financial performance, Chewy’s second-quarter earnings and revenue exceeded Wall Street’s forecast, with an EBITDA of $145 million and a 3% increase in net sales, reaching $2.86 billion. Chewy also made a $500 million public offering of its Class A common stock by BC Partners Advisors LP, along with an agreement to repurchase $300 million of its stock from the same entity.