Pet care company Chewy Inc. (NYSE:CHWY) has had an eventful 2024, and an analyst thinks investors should buy the stock for more upside ahead. This news comes a month after it was revealed that Roaring Kitty (aka Keith Gill) dumped his stake in the company.
The Chewy Analyst: Bank of America analyst Curtis Nagle double upgrades Chewy shares from Underperform to Buy and raises the price target from $24 to $40.
Read Also: Pet Supply Retailer Chewy's Q2 Earnings: Profit Edges Out Expectation, Sales Per Active Customer Hits New Record
The Analyst Takeaways: Improving industry trends and earnings potential led to an upgrade on Chewy shares by Nagle.
The analyst said Chewy's expense discipline could lead to earnings growth that is being underestimated by investors and other analysts.
"Stabilizing industry trends lay path to pawsitive growth," Nagle said.
Nagle said animal shelters are taking in a large number of pets, but adoption trends have improved since the start of 2024.
Pet spending also appears to have bottomed since being negative year-over-year earlier this year, the analyst added.
"Easier comps in 1H'25 and commentary from our recent pet expert call make us confident that industry can return to consistent LSD%-MSD% growth."
Nagle said Chewy's website traffic was up 6% year over year in the third quarter compared to down 11% year over year in the first quarter, which could support market share gains and a higher customer count.
The improving industry data could lead to stronger earnings leverage for Chewy, something Nagle said is being underestimated regarding the stock.
"Since cost cuts in late 2023, Chewy has demonstrated strong expense discipline in SG&A and has scaled fulfillment expenses."
Advertising and health growth and opportunities also come with higher gross margins and could lead to "significant earnings growth in the coming years," Nagle added.
The analyst said Chewy's subscription-like model should command a premium and the company's low exposure to discretionary categories minimizes the impact for increased Chinese tariffs.
Nagle predicts that Chewy can beat the third-quarter Street estimate of 50,000 net adds for active customers, given the pet industry trends and website traffic. The analyst notes that over the last 10 quarters, the active customer count has been a leading indicator of which way the stock will move.
CHWY Price Action: Chewy stock is up 4.3% to $34.37 on Wednesday, versus a 52-week trading range of $14.68 to $39.10. Chewy stock is up 55% year-to-date in 2024.
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