Raymond James upgrades Chewy as it sees expectations conservative

Investing.com -- Raymond James upgraded Chewy to Outperform from Market Perform, citing a reset in expectations after the stock fell 33% since its fiscal third quarter results while the S&P 500 was flat.

The brokerage said the pullback leaves Chewy trading at about 8x enterprise value to 2027 EBITDA, below its three year average of 22x, creating what it sees as an attractive entry point. It set a $28 price target, based on roughly 10x EV to EBITDA on fiscal 2027 estimates, a discount to historical levels to reflect slower growth.

Raymond James expects fiscal 2026 revenue to rise about 7% year on year and EBITDA margin to expand 80 basis points to 6.5%, with potential upside. It said concerns about conservative guidance have weighed on the shares, but sees several drivers supporting growth.

The firm expects a steady consumer backdrop into 2026 to aid pet household formation, which has been below historical trends. It also sees active customer growth benefiting from organic additions, share gains from digital migration and an expanding network of vet clinics.

Net sales per active customer remains a key lever. Raymond James said newer customer cohorts tend to increase spending over time, loyalty initiatives are gaining traction and the drag from a 53rd week in fiscal 2025 will ease.

The brokerage also pointed to pricing flexibility. If industry prices rise 1% to 2% in fiscal 2026, it expects Chewy to either raise prices or lean into value to gain share, with either approach supporting revenue.

Margins should benefit from higher gross margin and operating leverage as elevated investment spending in fiscal 2025 moderates, the firm said.

Raymond James highlighted Chewy’s defensive profile. Autoship accounts for about 83% of revenue, while staples categories such as consumables and healthcare make up roughly 90% of annual sales, offering protection in a downturn.

Chewy is the largest pure play pet e commerce retailer in the United States, with more than 1,600 brands and a growing push into healthcare and international markets.

You May Also Be Interested In

• e-commerce stocks split as Rosenblatt favors Etsy, eBay; Chewy rated neutral
• Why this strategist thinks longer-term outlook for stocks is "unfavorable"
• Premarket movers: Crypto stocks rally, Ross Stores jump on upbeat forecast