Chewy Stock (CHWY) Down Heavy: Analyst Reaffirmed $50 PT, Selloff Overdone?

Chewy Inc. (CHWY) experienced a notable stock decline following concerns over operational expenditures and planned investments, but analysts at Mizuho Securities suggest the market's reaction may be an overcorrection. Despite the concerns, the firm maintains an “Outperform” rating and a $50 price target on Chewy shares.

The Chewy stock price has come under huge pressure following earnings, down 17% on the day. Mizuho observed an OpEx miss and the anticipation of further investments in the latter half of the year. The market responded negatively to the news, resulting in a heavy drop. However, Mizuho views this selloff as excessive, particularly given Chewy's slightly better-than-expected Q2 results.

The company's fiscal second quarter saw a profit of $18.9 million, translating to 4 cents per share, which surpassed Wall Street's forecasts. Revenue also exceeded expectations, reaching $2.78 billion. Chewy projects revenues for the upcoming quarter to be between $2.74 billion and $2.76 billion. Concurrently, Chewy executed a repurchase of $100.0 million of Class A common stock from Buddy Chester Sub LLC.

Mizuho believes that Chewy's decision to reinvest upside, while “disappointing” to some, has the potential to expedite revenue growth. This perspective suggests that the current stock price may not fully reflect the company's long-term growth potential.

The reaffirmation of the $50 price target by Mizuho, coupled with positive forecasts from other firms, underscores the belief that the recent selloff may have created an opportunity for those with a long-term perspective.