Chewy (CHWY) stock has scored yet another bullish review this month, with Evercore analyst Mark Mahaney upgrading the stock to Buy from Hold and raising the price target to $47 from $34. The analyst cited multiple tailwinds, including the improving fundamentals of the online pet goods retailer. Shares were up nearly 1% as of writing. Earlier this month, Mizuho and Wolfe Research also upgraded Chewy stock to Buy from Hold.
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Chewy shares have rallied 92% over the past year, as investors noticed the improvement in the company’s performance despite intense competition and macro challenges. Last month, the company reported better-than-expected Q3 FY24 revenue and earnings.
Here’s Why Evercore Turned Bullish on Chewy Stock
Evercore’s Mahaney highlighted several reasons for the rating upgrade. The 5-star analyst stated that industry reports, channel checks, and Evercore’s own proprietary consumer survey indicate stabilization in the U.S. pet industry after two years of decline, driven by both cyclical growth improvements and ongoing online penetration.
The analyst also highlighted Chewy’s dominant position in the online pet industry and “very impressive Sat Scores,” with both these factors expected to drive a cycle of sustained net additions growth. Moreover, Mahaney expects continued and significant gross margin expansion, fueled by Pet Health & Private Label products and advertising revenue.
Additionally, Mahaney expects consistent and notable expansion in EBITDA (earnings before interest, tax, depreciation, and amortization) margin. Finally, the analyst noted the improvement in CHWY’s free cash flow (FCF). Mahaney expects Chewy to deliver a 3-year FCF CAGR (compound annual revenue growth) of 25% on reasonably conservative assumptions, supporting a 25x EV/FCF (enterprise value to FCF) multiple.
Based on recent industry data, company-specific initiatives, and future product catalysts, Mahaney has an encouraging view of Chewy’s ability to at least modestly accelerate growth in Fiscal 2025 and maintain durable top-line growth, active user growth, and margin improvement over the next few years.
Is Chewy a Buy or Sell?
Aside from Mahaney, Chewy also received bullish reviews from two other analysts on Monday. Morgan Stanley analyst Nathan Feather reiterated a Buy rating on CHWY stock and increased the price target to $40 from $38, while Wedbush analyst Seth Basham reaffirmed a Buy rating with a price target of $39.
Overall, Wall Street has a Strong Buy consensus rating on CHWY stock based on 18 Buys and four Holds. The average CHWY stock price target of $38.65 implies 5.7% upside potential.
