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Chewy Inc(CHWY-N)

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Why Chewy Stock Got Thrashed on Thursday

Motley Fool - Thu Oct 12, 2023

What happened

In the latest of several such moves in recent weeks, Chewy(NYSE: CHWY) was hit with another analyst price target cut on Thursday. This rattled investor confidence in the stock, and the market reacted by pushing its price nearly 8% lower on the second-to-last trading day of the week. By contrast, the S&P 500 index held up relatively well, shedding 0.6% of its value.

So what

Unfortunately for Chewy, the price-cutting analyst is employed at ever-influential investment bank Goldman Sachs. That prognosticator, Eric Sheridan, reduced his Chewy price target to $45 per share from the preceding $50. This was the bad news; the good is that Sheridan maintained his buy recommendation on the shares.

The research note heralding the cut wasn't made public. Nevertheless, it's a blow for Chewy, as it's only the latest in a series of recent price target reductions.

At the beginning of October, for instance, Barclays analyst Trevor Young made a more drastic cut, changing his level to $20 per share from the previous $28 and maintaining only an equal-weight (hold) recommendation.

In Young's view, the growth of the overall pet care industry is "normalizing," and competition is rising -- a combination that doesn't bode particularly well for Chewy.

Now what

Worse, toward the end of September, Sheridan and Young's peer Rupesh Parikh at Oppenheimer went as far as to downgrade his recommendation on the stock. For him, it's now only a perform (neutral) as opposed to his previous take of outperform (buy).

Citing both company-specific and broader macroeconomic concerns, Parikh wrote in a fresh research note, "We expect a more challenging backdrop to persist for at least a few more quarters, amid recent signs of weakness in the historically resilient pet food category and the potential for more muted inflation benefits in [fiscal year] 2024."

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and Goldman Sachs Group. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.

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