Chewy's stock jumps toward fresh highs after BofA's U-turn to a bullish call

Dow Jones11-21 04:10

MW Chewy's stock jumps toward fresh highs after BofA's U-turn to a bullish call

By Tomi Kilgore

Pet-adoption trends have improved this year and pet spending appears to have bottomed, BofA's Curtis Nagle said

Shares of Chewy Inc. charged up to fresh highs for the year on Wednesday, as BofA Securities reversed course to be the most bullish on Wall Street toward the online pet-products retailer, after being the lone bear.

"Shelters are still taking in more pets on a net basis and year-over-year pet spend is negative, per BofA aggregated credit- and debit-card data," analyst Curtis Nagle wrote in a note to clients. "However, adoption trends have steadily improved since the start of 2024 and pet spend appears to have bottomed."

The stock $(CHWY)$ ran up 4.3% in afternoon trading to $34.36 per share, to put it on track to close at its highest price since July 21, 2023.

Nagle double-upgraded the stock to buy from underperform, and raised his price target to $40 from $24. The new target is the highest among the 32 analysts surveyed by FactSet who cover Chewy.

Nagle is now one of 17 analysts tracked by FactSet who are bullish on the stock. Before the upgrade, he was the only one who was bearish. The other 15 analysts are neutral.

"Improving industry data should lead to accelerating top-line trends and stronger earnings leverage for Chewy, which we think the Street is underestimating," Nagle wrote.

Specifically to Chewy, Nagle said traffic to the company's website has "accelerated significantly" in recent months to growth of 6% in the third quarter from a drop of 11% in the first quarter, which is supportive of market-share gains and better-than-expected customer counts.

He now expects earnings before interest, taxes, depreciation and amortization (Ebitda), which is a measure of underlying profitability, of $719 million in 2025, rising to $917 million in 2026. He noted both his estimates are well above Street estimates of $675 million in 2025 and $848 million in 2026.

Nagle believes investors will be willing to pay a premium valuation for Chewy's stock given the company's subscription model and low exposure to discretionary categories, which insulates it from exposure to China tariffs.

See related: General Mills is buying its fifth pet-food business. Here's why it could fetch more growth.

In addition, the company's historically consistent performance relative to pet-industry trends provides increased predictability into earnings and revenue performance.

Chewy stock has soared 45.3% year to date, while the S&P 500 index SPX has gained 23.5%.

-Tomi Kilgore

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November 20, 2024 15:10 ET (20:10 GMT)

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Chewy's stock jumps toward fresh highs after BofA's U-turn to a bullish call

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