Chewy, Inc. (NYSE: CHWY) was a huge winner during the stay-at-home lifestyle during and after the pandemic. And then the bottom fell out as Chewy fell to under $15 per share during 2024. That was then, and now Chewy is back close to $35. Analysts on Wall Street are now looking for upsized gains in Chewy shares to continue, and perhaps not even just over the coming quarters.
Oggonomics has identified Chewy as a potential winner for strategic investors. There are of course absolutely no assurances everything goes gangbusters from here, and this is absolutely not intended to be investment advice nor a recommendation to buy the stock. Oggonomics has no price target nor does it have any formal rating on Chewy shares.
Chewy has an easy-to-explain business model, and now its earnings and analyst reports are aligning into what may be a great story again.
Now that improvements are being seen in the pet industry again, Chewy may be poised for large earnings gains in the coming years. Just please keep in mind that the analysts chasing Chewy higher are jumping ahead of earnings. Chewy report its fiscal Q3-2024 financial results on Wednesday, December 4, 2024.
BofA Securities has issued a double-upgrade to Buy from Underperform and the firm raised its price target to $40 from $24. According to the analyst report from Curtis Nagle, pet adoption trends have been rising since the start of 2024. That’s good for subscription models of delivered pet needs. The spending trends may have bottomed out even if they are down from a year ago. The company’s subscription-like business model should also bring come clarity to the business.
BofA is not alone. Other analysts have been raising their views and expectations as well.
On November 18, Barclays reiterated its Overweight rating and raised its price target to $40 from $34. Barclays sees its ads adoption trending better while a promotional environment remains rational. On top of industry adoption trends being positive, Barclays also reported seeing positive mobile app trends across Chewy’s key metrics.
Citigroup had upgraded Chewy to Buy from Neutral and raised its price target to $40 from $28 just over a week earlier than the BofA call. Citi was calling for a modest “beat” on sales and EBITDA as demand is strong with solid execution by the company. Its active customer count is also said to be growing after years of declines and its market share is also apparently growing. Sponsored ads, higher volume, automated fulfillment centers and even stronger health/wellness sales are helping the pet products supplier that should all lead to strong EBITDA reports for two years or more. All this points to “multiple-expansion” as Chewy’s profits rise.
Some additional issues have been helping Chewy as well. This boils down to index inclusion, private equity share sales, and even the meme stock crowd.
A few other issues have come into play regarding Chewy shares. A $500 million stock offering by BC partners has now cleared much of the private equity overhang. At the time, Chewy decided to buy back around $300 million worth of shares from BC and the combined effort leaves private equity ownership at less than 60% of Chewy.
Chewy replaced Stericycle, after its Waste Management acquisition, in the S&P Mid-Cap 400 Index on November 6. While this move is not a major fundamental issue for the company, the market cap of $14 billion and the trailing sales of $11+ billion put the company on the radar for other potential deals down the road. That’s not a prediction, just a characteristic of companies joining the Mid-Cap indexes.
One somewhat ironic part of the most recent gain is that investor Keith Gill, the investor you know as “Roaring Kitty” recently exited his Chewy stake after having had as many as 9 million shares in October. The shares were significantly lower (closer to $26) at that time.
Chewy shares were last seen up 4.4% at $34.40 on Wednesday. This view of the analysts is again before the earnings report and after shares have rallied some 30% since shortly before the election. Chewy has a 52-week range of $14.69 to $39.10.
