Chewy(CHWY) Benzinga·2024-11-20 19:56Analyst Upgrade and Price Target - Bank of America analyst Curtis Nagle double upgrades Chewy shares from Underperform to Buy and raises the price target from 40 [1] - The upgrade is based on improving industry trends and earnings potential [2] Industry Trends and Growth - Animal shelters are taking in a large number of pets, but adoption trends have improved since the start of 2024 [3] - Pet spending appears to have bottomed after being negative year-over-year earlier this year [3] - Industry is expected to return to consistent low single-digit to mid single-digit (LSD%-MSD%) growth in the first half of 2025 [3] - 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 [3] Earnings and Expense Discipline - Chewy's expense discipline could lead to earnings growth that is being underestimated by investors and other analysts [2] - Since cost cuts in late 2023, Chewy has demonstrated strong expense discipline in SG&A and has scaled fulfillment expenses [4] - Advertising and health growth opportunities come with higher gross margins and could lead to significant earnings growth in the coming years [4] Business Model and Market Position - Chewy's subscription-like model should command a premium [5] - The company's low exposure to discretionary categories minimizes the impact of increased Chinese tariffs [5] - Chewy is predicted to beat the third-quarter Street estimate of 50,000 net adds for active customers, given pet industry trends and website traffic [5] - Over the last 10 quarters, the active customer count has been a leading indicator of stock movement [5] Stock Performance - Chewy stock is up 4 3% to 14 68 to $39 10 [6] - Chewy stock is up 55% year-to-date in 2024 [6]