Wall Street sees 50% upside for pet supplies retailer Chewy. What's in the valuation?

Chewy, the online pet supplies retailer, is among the top investment ideas put forward by Two Sigma Advisors, one of the world's largest quantitative hedge funds, writes Insider Monkey. Overall, Wall Street is upbeat on the stock: although Chewy shares have fallen 37% year to date, analysts believe they now offer upside of about 50% from current levels.

Two Sigma counts Chewy among its top holdings alongside Nvidia and Hewlett Packard, notes Insider Monkey. The investment website compiled a list of Two Sigma's largest positions as of the first quarter that carry at least 50% upside based on Wall Street consensus target prices. Two Sigma manages more than $70 billion in assets and uses AI and algorithmic models to make investment decisions.

Chewy shares have lost around 38% year to date. In its first-quarter results, the company lowered its full-year 2026 net sales guidance to $13.4-13.55 billion from its previous forecast of $13.60-13.75 billion, citing a more challenging consumer environment. Analysts polled by FactSet had expected net sales of $13.65 billion, the Wall Street Journal reported.

Chewy cut its outlook despite continued growth in its key operating metrics. First-quarter net sales increased 7.7% year over year to $3.36 billion, adjusted EBITDA rose 31.3% to $253.1 million, and active customers were up 3.6% at 21.5 million. One of the company's key businesses is its Autoship subscription service, which provides a recurring revenue stream. In the first quarter, Autoship sales increased 10.5% year over year to $2.83 billion and accounted for 84.4% of total net sales.

This year, the company expanded its Chewy Vet Care network by completing its $400 million acquisition of Modern Animal, a network of 29 veterinary clinics and a digital veterinary platform, in May. Late last year, Chewy agreed to acquire the equine health platform SmartEquine. By the end of 2026, the company plans to expand its Chewy Vet Care network to 60 clinics.

BNP Paribas Securities analyst Chris Bottiglieri wrote in a report seen by Oninvest that weaker demand for premium products and competition from larger retailers remain among the factors weighing on the stock. However, after speaking with the management in late June, BofA analyst Michael McGovern expressed confidence in the company's prospects despite softer consumer demand and higher fuel costs, according to a report seen by Oninvest. McGovern cited the expansion of Chewy's veterinary business, growth in its fresh and frozen pet food offering, and efficiency gains from AI as key strengths. BofA reiterated its "buy" rating at a $31 per share target price. That implies about 50% upside from the stock's July 8 closing price.

In a June 23 report seen by Oninvest, TD Cowen said the market was undervaluing Chewy relative to its expected growth. The firm named Chewy its top smid-cap stock idea for 2026 and said the shares remained attractive at current levels. TD Cowen also argued that as online sales of pet products continue to gain share of the overall market, Chewy is well positioned to take customers from brick-and-mortar competitors. The firm reiterated its "buy" rating at a $34 per share target price.

According to MarketWatch data, Wall Street is upbeat on the stock. It has 20 "buy" and four "overweight" ratings from the 31 analysts covering the company, versus seven "hold" ratings and no "sell" recommendations. The average target price is $30.82 per share, implying about 50% upside.