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Investing.com -- Chewy is gaining share in the recovering pet retail sector and remains well positioned to benefit from the ongoing shift to online shopping, Bank of America said, maintaining a Buy rating on the stock with a $49 price objective.
Spending data from BofA’s aggregated debit and credit card metrics showed a stabilization in U.S. pet retail sales in May, with year-over-year trends now flat compared with a 4% decline in the first quarter.
Industry trends have steadily improved from a trough in June 2024, analysts wrote, pointing to normalizing inflation and stable pet adoptions as supporting factors.
Chewy’s performance stood out relative to peers, the brokerage said, citing third-party data that showed accelerated traffic and sales in May.
The company grew revenue 8% in the first quarter while rival Petco saw a 2% drop.
Chewy (NYSE:CHWY) is benefiting from its online model as more consumer dollars move away from brick-and-mortar retailers, BofA added.
Early second-quarter data is tracking ahead of expectations, raising the possibility of upside to BofA’s 8% growth estimate for Chewy.
The gap between BofA’s aggregate card data and its Chewy sales forecast has narrowed, suggesting better alignment with reported results.
Looking ahead, BofA sees risk of a modest slowdown in the fourth quarter due to tougher comparisons but expects the pet industry to return to mid-single-digit growth over time.
Chewy’s above-industry revenue trajectory and projected EBITDA margin expansion could drive earnings growth of 25% in 2025, the firm said, compared to 11% for peers.