On Friday, Wolfe Research analysts raised their outlook on Chewy Inc . (NYSE: NYSE:CHWY) stock, upgrading it from Peerperform to Outperform and selecting it as a top pick. The firm's analysts highlighted the potential for revenue and margin growth, citing a valuation of 17 times projected 2026 EBITDA as highly reasonable. This optimism appears well-founded, as InvestingPro data shows Chewy has achieved a remarkable 62% return over the past year, with a solid financial health score rated as GOOD.
The upgrade is grounded in four primary factors. First, customer growth is on an upward trajectory, with expectations for acceleration in 2025 and 2026. Second, the Net Sales Per Active Customer (NSPAC) is anticipated to continue its healthy growth, propelled by an ongoing shift towards pet health and Autoship subscriptions. Third, several product catalysts are expected to emerge. Lastly, international expansion efforts are underway. Supporting these growth expectations, InvestingPro data reveals the company's strong revenue of $11.4 billion in the last twelve months, with analysts forecasting continued growth.
In addition to these factors, Wolfe Research believes that Chewy will benefit from operational efficiency gains that could lead to more significant margin expansion. The analysts' revenue and EBITDA forecasts are 2% and 5% above the consensus estimates, respectively. According to InvestingPro, the company maintains a healthy gross profit margin of 29.2% and has demonstrated strong cash flow management, with sufficient coverage for its interest payments.
The analysts underscored that Chewy's business model, which includes a substantial portion of sales from Autoship (80%) and nondiscretionary consumables plus health (85%), resembles a subscription-like service. This model is expected to support consistent net sales growth, potentially reaching mid-to-high single-digit percentages year-over-year over the next two years. InvestingPro analysis indicates the company is profitable with positive earnings per share and maintains a moderate level of debt, suggesting a sustainable financial position.
Wolfe Research's positive stance on Chewy reflects confidence in the company's ability to leverage its strategic initiatives and operational efficiencies to enhance its financial performance in the coming years.
In other recent news, Chewy Inc., the online pet products retailer, is experiencing significant developments. Buddy Chester Sub LLC, Chewy's principal shareholder, has initiated a public offering of $500 million worth of Chewy's Class A common stock. In conjunction, Chewy has agreed to repurchase $50 million of its Class A common stock from the selling shareholder. RBC Capital and TD Cowen have maintained positive ratings on Chewy's stock, citing favorable trends in the pet industry and strong third-quarter earnings.
Chewy's third-quarter revenue was reported at $2.88 billion, slightly exceeding the consensus of $2.86 billion, largely due to a 9.9% year-over-year increase in Autoship customer sales. However, non-Autoship customer revenue declined by 13.4% year-over-year.
RBC analysts have also named Chewy as one of their top stock picks in the U.S. Hardlines/Broadlines & Food Retail sector, recognizing the company's market potential.
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