Pets adopted during the pandemic are getting older. Chewy's expansion into this business stands to benefit.

BofA analysts project Chewy's veterinary clinics and pet pharmacy segments could generate an additional $1 billion in revenue over the coming years, driven by the aging of pandemic-adopted pets and a rebound in overall pet adoptions. Despite its current 11 clinics and a $1.1 billion pharmacy business holding only 7% market share, BofA projects significant upside, including an incremental $750 million in pharmacy sales if customer penetration reaches 40%. Analysts highlight Chewy's established pharmacy presence and broad product selection as key advantages in the expanding $40 billion pet healthcare market, with Chewy shares reacting positively, gaining 2.3% on the news.

Analysis

Bank of America analysts have identified a significant long-term growth opportunity for Chewy (CHWY) centered on its expansion into veterinary services and pet pharmaceuticals, projecting a potential $1 billion revenue uplift over the next several years. The core catalysts are demographic: the aging of pets adopted during the pandemic and an anticipated rebound in overall pet adoptions, which are expected to accelerate growth in 2026-2027. Chewy's pharmacy segment, despite being the largest in the U.S. with $1.1 billion in sales, has substantial room for expansion, holding only a 7% market share and penetrating just 25% of its customer base. Achieving its target of 40% penetration could unlock an incremental $750 million in sales. The company's newer veterinary clinic business, while small with only 11 locations, is reportedly performing ahead of expectations and is projected to accelerate its rollout. This strategy positions Chewy to capture a larger share of the fragmented $40 billion pet healthcare market. While the company faces competition from Amazon and must overcome recent first-quarter margin pressures, its established relationships with the veterinary community and a significantly more expansive product selection are noted as key competitive advantages.

Key Decisions for Investors

• Investors should consider the long-term growth potential from the strategic expansion into veterinary services and pharmacy, which BofA estimates could add $1 billion in revenue, driven by favorable demographic tailwinds.
• Key performance indicators to monitor are the pharmacy customer penetration rate, with a target of 40-50% versus the current 25%, and the pace of new veterinary clinic openings, as execution on these fronts is critical to realizing the growth thesis.
• While the outlook is positive, it is important to weigh this against recent margin pressures and the competitive landscape, particularly noting whether Chewy's specialized product depth can effectively defend its pharmacy business against broader e-commerce players like Amazon.