BoA has named pet e-commerce company Chewy its top small-to-mid cap internet pick. The news led to rally in the stock as quotes jumped to their highest level since February 2023.
Details
«Chewy is our top SMID cap Internet pick given consistent share gains against the pet industry, exposure to non-discretionary & subscription-like sales, and margin expansion,» BoA analysts wrote in a note yesterday, as quoted by Barron's.
Chewy shares jumped 4.88% yesterday to $47.46 apiece. Intraday they hit a two-year high.
What BofA likes about Chewy
Because nondiscretionary categories like consumables and pharmacy account for more than 85% of Chewy sales, the company is better prepared for a possible recession, BoA argued.
Chewy offers something like a subscription service. This feature allows users to have items shipped automatically on a schedule for a discounted price. Thus, a company has a steady revenue stream and can manage inventory more efficiently, reduce customer acquisition costs, and increase brand loyalty, explains Recharge, a subscription management service.
Chewy's margins are expanding. In its fiscal 2024, which ended February 2, the company achieved a 2.9 percentage point net margin increase to 3.3%. Chewy's adjusted earnings per share for the fourth quarter of fiscal 2024 was $0.28, nine times the Wall Street forecast. The company attributed the healthy financial performance to growth in customers.
Stock performance
Chewy quotes have soared nearly 42% year to date and nearly 114% in the last 12 months. The stock was a «pandemic favorite,» notes Barron's, peaking at $120 per share in February 2021. Consumers turned to Chewy to get pet necessities delivered to their homes when physical pet stores were closed during lockdowns.
The next time Chewy was in the spotlight was 2024. That's when influential trader Keith Gill, known on the internet as «Roaring Kitty,» bought and then sold a significant stake in the company. Gill's fame peaked in 2021 during the meme stock rally, when stocks like GameStop and AMC soared. Chewy has managed to avoid meme stock status thanks to its strong financial performance, wrote MarketWatch.
In early 2025, Mizuho upgraded Chewy to «outperform,» raised its target price for the stock, and argued that the company was «entering beast mode» in 2025. The stock now has a total of 33 ratings from coverage analysts, with no «sells.» Twenty-one advise buying (»buys» and «overweights»), versus 12 «holds.»
Their average target price is $40.38 per share, implying 15% upside.
