Chewy price target raised to $50 from $39 at Morgan Stanley

Morgan Stanley raised its price target on Chewy (CHWY) to $50 from $39, maintaining an Overweight rating, citing strong active customer growth and revising net customer addition forecasts upward by 290,000 and 250,000 for 2025 and 2026, respectively. The firm anticipates EBITDA margins above implied guidance, reaching 5.9% in 2025 and 7.1% in 2026, despite a slight decrease in net sales per active customer and weaker-than-expected first-quarter margins. Other firms, including Goldman Sachs, CFRA, and Citi, have also raised their price targets on Chewy, reflecting confidence in the company's growth and margin expansion potential.

Analysis

Morgan Stanley has upgraded its price target for Chewy Inc. (CHWY) to $50 from $39, reiterating an Overweight rating, primarily due to robust active customer growth observed over two consecutive quarters despite reduced marketing expenditure. This performance has bolstered confidence in Chewy's customer acquisition trajectory, leading Morgan Stanley to increase its net customer addition forecasts by 290,000 for 2025 and 250,000 for 2026, projecting approximately 890,000 and 880,000 new customers respectively. While a slight 1% decrease in net sales per active customer (NSPAC) is anticipated for both 2025 and 2026 due to newer customers' initially lower spending, this is expected to be offset by Chewy's greater than 100% net revenue retention, indicating long-term incremental revenue and margin contribution. Despite weaker-than-anticipated first-quarter margins, Morgan Stanley views this as temporary, forecasting EBITDA margins to surpass implied guidance, reaching 5.9% in 2025 ($734 million) and 7.1% in 2026 ($964 million). This optimistic view is echoed by other financial institutions: Goldman Sachs raised its target to $48 (Buy) citing strong sales and customer additions; CFRA increased its target to $53 (Strong Buy) highlighting broad performance and expanding EBITDA margins; Citi lifted its target to $49 focusing on growth outlook and margin potential; and Jefferies adjusted its target to $44 (Hold) acknowledging a strong start to 2025 and market share gains. Chewy's stock has demonstrated significant momentum, with an 81.8% return over the past year, and current financials show a revenue of $11.86 billion and a gross profit margin of 29.2%.

Key Decisions for Investors

• Investors should consider the broad-based positive sentiment from multiple analysts, which signals growing confidence in Chewy's customer acquisition strategy and margin expansion capabilities.
• Monitor Chewy's ability to maintain net active customer additions and observe the trajectory of net sales per active customer, particularly how the greater than 100% net revenue retention materializes to offset initial lower spending from new cohorts.
• Assess the company's progress towards achieving the forecasted EBITDA margin improvements, especially given the recent weaker-than-expected Q1 margins, as this is a key driver for the revised price targets.
• While most analysts are bullish, Jefferies' Hold rating suggests investors should still conduct thorough due diligence on valuation and potential risks before increasing exposure.