Gains could be in store for Chewy amid a normalizing U.S. pet industry, according to Evercore ISI. Analyst Mark Mahaney upgraded shares of the pet retailer to outperform from in line and increased his price target by $13 to $47. That reflects 29.4% upside from Friday’s close. “We believe the Pet Industry has largely stabilized, and CHWY is well-positioned to grow in line (MSD% historical growth) or better in a potential market recovery,” the analyst wrote. “Recent industry data, combined with CHWY specific initiatives and future product catalysts, support our constructive view of CHWY’s ability to accelerate (at least modestly) growth in FY’25 and sustain durable revenue growth, active user growth, and margin expansion over the next few years.” CHWY 1Y mountain CHWY, 1-year Mahaney noted, citing moderate growth in the number of adoptions and pet households, that consumers who had cut back in recent years due to high inflation are now spending more on pets again. With inflation cooling, he thinks a decrease in cost uncertainty among consumers should continue to spur growth this year. Specifically, the analyst cited that pet expenditures are expected to reach $207 billion by 2030, up from $160 billion in 2025. That represents a five-year compound annual growth rate of 5.3%, with food representing 41% of total pet expenditures in 2030 at $85 billion. Not only that, but Mahaney also pointed to a shift among consumers toward purchasing pet supplies online, citing that 85% of respondents from Evercore’s 2024 Annual Pet Survey indicated they have done so. When it comes to Chewy in particular, 52% of respondents said they purchased their pet supplies from the company’s website, suggesting it will continue to dominate in the space, he said. In fact, he thinks the company is in the early stages of returning to a cycle of sustained growth in its customer base and sees an expansion in both its gross margins and free cash flow from here. “We think with a reduction in pet supply price volatility from moderating inflation in 2H24, Amazon and Chewy will continue to remain the clear two leading Online destinations for Pet Supplies, and CHWY will likely grow in line with or faster than the market in 2025 and beyond,” the analyst also said. Mahaney’s call puts him among the majority of analysts on Wall Street. Out of the 31 analysts covering the stock, 19 have a strong buy or buy rating, per LSEG data. Meanwhile, the remaining 12 have a hold rating. Shares were marginally higher in the premarket Monday on the heels of the upgrade. Over the past six months, the stock has risen about 37%.
