Chewy Stock Rises Sharply on Double Upgrade from BofA -- Barrons.com

Dow Jones11-21 02:15

By Emily Dattilo

Chewy is a winner as the pet industry gets out of the doghouse, BofA Securities argued on Wednesday.

Analysts led by Curtis Nagle upgraded shares of the pet-supplies retailer to Buy from Underperform and raised their target for the price to $40 from $24.

Chewy stock gained 3.9% to $34.22 in afternoon trading. The S&P 500 was down 0.5%.

Shelters are still taking in more pets on a net basis and year-over-year pet spend is negative, the analyst explained, pointing to BofA credit and debit card data. That being said, adoption trends have improved since the beginning of the year and pet spending seems to have bottomed out.

A lower bar for estimates in the first half of 2025, plus commentary from a recent pet expert bolster confidence the industry can return to consistent low-single digit to mid-single digit growth, Nagle wrote.

"Improving industry data should lead to accelerating topline trends and stronger earnings leverage for Chewy, which we think the Street is likely underestimating," the analyst continued. "Since cost cuts in late 2023, Chewy has demonstrated strong expense discipline in SG&A [selling, general, and administrative] and has scaled fulfillment expenses."

That, as well as a pivot to higher gross margin sales, offers an opportunity for sizable earnings growth going forward, he added.

Write to Emily Dattilo at emily.dattilo@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

November 20, 2024 13:15 ET (18:15 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.

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