BofA named Chewy stock as the top pick in the sector. What attracted the analysts?

Bank of America named online pet products seller Chewy its «top pick» among small- and mid-cap industry players. The news cheered investors as the company's quotes jumped to their highest level since February 2023.

«Chewy is our top pick among small- and mid-cap Internet companies,» Bank of America analysts wrote in a June 2 note that quoted Barron's.

Chewy shares reacted with growth: they rose by 4.88% to $47.46 on June 2. During the day, the securities rose to the maximum for more than two years - since February 2023.

- The company sells basic necessities, including feed and medications, Bank of America noted. Such categories bring in more than 85% of Chewy's sales and are more likely to withstand a possible recession, analysts said.

- Chewy not only sells pet products online, but also offers a «subscription» service. This feature allows customers to receive items automatically on a schedule and at a discounted price, rather than having to reorder each time. The company, in turn, can expect predictable revenue, manage inventory more efficiently, reduce customer acquisition costs and increase customer loyalty, approves the Recharge service that organizes this model of operation.

- Chewy's business margins are growing. In fiscal 2024, which ended Feb. 2, the company achieved a 2.9 percentage point increase in net margin - to 3.3%. Chewy's adjusted earnings per share for the fourth quarter of fiscal 2024 was 28 cents, nine times exceeding Wall Street forecasts. The company attributed the financial performance to growth in its customer base. 

Chewy quotes have soared nearly 42% since the beginning of the year, and nearly 114% over the past year. The stock was known as a «pandemic favorite» because it rose just at the height of Covid-19, Barron's writes. The stock traded at a high ($120) in February 2021. Consumers used Chewy's services to get pet necessities straight to the door when physical stores were closed during the lockdowns.

The next time Chewy was in the spotlight was in 2024. That's when influential trader Keith Gill, also known as Roaring Kitty, bought and then sold a significant stake in the company. Gill was the mastermind behind the rally of «meme» stocks in 2021 - such as, GameStop and AMC. Avoiding «meme» stock status itself was helped by Chewy's strong financial results, wrote MarketWatch.

In early 2025, Mizuho announced that Chewy s «turning on beast mode for 2025,» and advised buying the retailer's securities. The company's securities now have a total of 33 ratings from analysts, and none advise selling. Buy is recommended by 21 analysts (Buy and Overweight ratings), Hold - 12 (Hold).

At the same time, the average target price is $40.38 - almost 15% below the current quotes.