Analysts at UBS have raised their price target on Chewy after the pet food and pet-related supplies retailer’s first quarter results showed improvement as inflation moderates.
The analysts upped their price target on the stock from $19 to $21 and awarded it a ‘Neutral’ rating.
Chewy shares traded at about $22 on Thursday afternoon.
“Given the risks and opportunities ahead, we think the stock is going to stay in this range,” they wrote.
“The ability to tap into deeper layers of the addressable market will depend on spending more on customer acquisition. This could stunt its profitability at some point.
“Also, the company does not expect the pet industry to normalize until 2025, providing an uncertain path ahead for the already slowing top line.”
On Chewy’s first quarter results, the analysts noted that the report largely exceeded expectations.
They pointed out that Chewy's sponsored ad program is gaining traction and it has plenty of runway ahead for its healthcare business.
Additionally, Chewy announced a $500 million buyback program which further supports earnings per share.
“With each passing quarter, Chewy is demonstrating that its financial model works,” the analysts said.
“It’s showing that it can get the complicated unit economics of delivering big, bulky, low-margin products at a suitable profit rate while it generates free cash flow.”