Jefferies downgrades Chewy on valuation concerns, sees limited upside
Investing.com -- Jefferies downgraded Chewy Inc (NYSE:CHWY) to 'Hold' from 'Buy' citing stretched valuation after a 41% rally in the stock this year and limited room for near-term earnings upside.
Chewy shares are now trading at 24 times its 2026 EBITDA forecast, about eight turns above where they were in March and one standard deviation above historical averages , a level that implies strong Q1 results and guidance raises, which Jefferies thinks are unlikely.
'The pet macro looks relatively stable, and Chewy is executing well,' analysts wrote, but added that most of the positives appear priced in. Those positives include improved alternative data signals, such as rising web traffic and app usage, as well as stronger revenue from sponsored ads.
Chewy is expected to benefit from supply chain efficiencies and increased advertising from pet product manufacturers. App data from SensorTower showed a 7.6% year-over-year increase in users and a 24% rise in downloads. Web traffic is also trending up, according to SimilarWeb (NYSE:SMWB).
Still, Jefferies pointed to a lack of macro catalysts, such as growth in new pet-owning households, and said recent U.S. consumer data suggests only modest increases in pet spending, potentially limiting upside in the near term.
The firm expects Chewy to reiterate or slightly raise the low end of its full-year guidance, but sees little justification for raising estimates beyond that. Jefferies slightly lifted its 2025 revenue forecast to $12.44 billion and EBITDA to $700 million, near the top of management's guide.
The price target was cut to $43 from $45, based on 20 times estimated 2027 EBITDA.
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