Analyst Expects Chewy Shares to Rise Based On ‘Dominant Position’

Chewy (NYSE: CHWY) shares are moving higher Tuesday after JMP Securities analyst Nicholas Jones initiated the stock with an Outperform rating and a $50 per share price target.

Chewy shares are currently up 0.9% premarket, although it is down over 7% so far in 2023 and has declined more than 18% in the last 12 months.

Even so, Jones said that the company's “dominant position” within the pet-related retail and services sectors positions it well to grab a “highly impassioned audience that is increasingly humanizing their pets.”

In addition, he believes this behavior “should continue to increase the premiumization of pets,” pushing consumers to allocate more of their discretionary spending to those pets over the longer term.

JMP Securities also feels that Chewy's autoship subscription model adds more predictability to its future revenue path than normally seen in an e-commerce marketplace, which they feel “warrants a premium in CHWY's multiple.”

On the other hand, last month, Deutsche Bank analyst Lee Horowitz downgraded Chewy to Hold from Buy. The analyst told investors that users returned to declines in the fourth quarter, with Chewy seeing users fall by 120,000 in the quarter.

Horowitz noted that while Chewy's outlook for 2023 suggests users will flip positive this year, the magnitude of the user growth is “likely tepid at best,” he wrote.

To justify upside in the stock, the analyst explained that investors need confidence in the company's user growth, which he feels “is in short supply for Chewy at the moment.”

Out of 18 analysts, 11 have a Buy rating on the stock, while seven have a Hold rating, according to TipRanks. The average price target is $46.13, representing a potential 30.94% upside.