Jefferies cuts Chewy stock rating on valuation concerns

On Thursday, Jefferies analysts downgraded Chewy Inc . (NYSE: NYSE:CHWY) stock from Buy to Hold, citing valuation concerns despite a raised price target to $43 from $41. The analysts noted that Chewy shares have risen 41% this year, with the stock currently trading at $47.28 and sporting a P/E ratio of 51x. According to InvestingPro data, the stock is trading near its 52-week high of $48.12, with technical indicators suggesting overbought conditions. This valuation is seen as high, especially considering the current market conditions.

The analysts expressed skepticism about Chewy’s ability to exceed expectations in its upcoming first-quarter results, scheduled for June 11. While the pet market remains stable and Chewy’s performance is strong, with InvestingPro showing an overall Financial Health score of "GREAT," the recent change in the company’s CFO could introduce uncertainty. For deeper insights into Chewy’s financial health and valuation metrics, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Jefferies analysts acknowledged that Chewy is benefiting from sponsored advertisements and alternative data from its web and app platforms. However, they believe that the stock’s current price already reflects these positive factors, limiting potential gains beyond the company’s current guidance.

The decision to downgrade is primarily based on the stock’s valuation, which the analysts believe leaves limited room for upside. Despite the downgrade, the price target was raised slightly to $43, reflecting a cautious outlook for future performance.

In other recent news, Chewy Inc. has seen several notable developments. BofA Securities analyst Curtis Nagle raised the price target for Chewy to $49, up from $44, while maintaining a Buy rating. This adjustment comes ahead of Chewy’s upcoming earnings report, with Nagle projecting first-quarter revenue at $3.09 billion, slightly above the consensus estimate. However, he anticipates EBITDA to be lower than expected due to increased advertising expenses. In a separate move, Citizens JMP decreased Chewy’s price target to $39 but upheld a Market Outperform rating, citing the resilience of pet-related expenditures even during economic downturns.

Chewy also announced that its Chief Financial Officer, David Reeder, will be leaving to join the semiconductor industry as a CEO. This transition is set to occur following the company’s next earnings announcement, with a search for his successor already underway. Furthermore, Chewy has expanded its board by appointing Dr. Nat Goldhaber as a new independent director, bringing his extensive experience in technology and venture capital. Piper Sandler analysts noted that Chewy’s minimal exposure to direct foreign sourcing could help mitigate the impact of recent tariff actions, requiring less than a 1% price increase to offset costs. These recent developments illustrate Chewy’s strategic adjustments and resilience in navigating current market challenges.

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