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Chewy Inc(CHWY-N)

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Why Investors Were Barking for Chewy Stock on Tuesday

Motley Fool - Tue Oct 31, 2023

The stock of Chewy(NYSE: CHWY) finished October in style, with its price rising a sturdy 4% on Tuesday. An analyst upgraded her recommendation on the purveyor of pet products, and that tasty treat sparked a rally in the stock. That 4% rise easily topped the 0.7% advance of the S&P 500 index on the day.

Chewy gets a recommendation upgrade from Morgan Stanley

The person behind the Chewy upgrade was Morgan Stanley's Lauren Schenk. Well before market open, the prognosticator moved her recommendation up one peg, to overweight (i.e., buy) from equal weight (hold). However, she also cut her price target: It now stands at $28 per share, $3 below the previous level.

In Schenk's view, Chewy stock has been oversold lately, a trend that she says is now "overdone." Meanwhile, she wrote, "We see a sustainable topline growth plus margin expansion story with valuation finally attractive at [roughly] 14x [earnings before interest, taxes, depreciation, and amortization]."

The analyst added that the company is still lapping up market share in terms of revenue and customer count. Although she believes that the wider pet products market continues to be weak, she finds the combination of revenue and margin growth and low valuation appealing.

The second upgrade in less than a week

Schenk's recommendation upgrade on Chewy isn't the only one in the past few days. Last Wednesday, UBS analyst Michael Lasser pushed up his estimation on the stock to neutral from his preceding sell. Like his Morgan Stanley peer, though, he also reduced his price target (to $20 per share from $25).

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

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