Online pet retailer Chewy (NYSE:CHWY) was upgraded to Outperform from Market Perform by Raymond James on Wednesday, with analysts assigning a $36 per share price target on the stock.
Chewy shares have gained more than 3% Wednesday following the upgrade.
The analysts told investors in a note that Chewy has a favorable setup on easing headwinds and sequential improvement while listing various other factors that the firm likes about the stock, including the drag on Active Customer growth from the churn of "COVID cohorts" lessening.
"Sensor Tower mobile app checks indicate improving trends," analysts wrote. "We see a positive inflection in customers in 2H23."
In addition, the analysts noted that increasing loyalty is driving higher net sales per active customer (NSPAC), and they see it as "a strong and sustainable tailwind."
"TAM expansion remains a big focus (healthcare now; International soon) which should benefit new customer growth and NSPAC," they added.
Furthermore, analysts pointed to 73% of Chewy's revenue coming from Autoship/subscription programs, the company's EBITDA guide for 2023, and its net cash and improving FCF as characteristics that differentiate CHWY from others in digital commerce.
"Net, we see trends improving q/q and view CHWY as having multiple levers to drive growth and better margins over the LT," analysts concluded.