Investing.com -- Chewy Inc (NYSE: CHWY )got an upgrade to "Buy" from "Hold" at Argus Research, on strong growth potential and promising expansion initiatives, including the launch of its Vet Care Clinics business.
Chewy shares have surged 32% in the past quarter, outperforming the S&P 500 's 3% gain and the 12% rise in the consumer discretionary sector.
Argus noted the company's focus on high-margin, recurring revenue streams, such as autoship services, which account for about 80% of sales. These predictable income streams, coupled with Chewy's recent entry into Canada, are expected to drive sales and earnings growth.
“We like the company’s expansion into Canada,” analyst said.
The brokerage set a $42 price target, implying a 34-times multiple on its 2025 EPS estimate, compared to the stock's current valuation of 29-times fiscal 2026 estimates.
Since its 2019 IPO, Chewy's revenue has tripled to over $11 billion, and its adjusted EBITDA margin has expanded by nearly 1,000 basis points. Management has set ambitious but achievable medium-term goals, including high single-digit sales growth and a double-digit EBITDA margin, Argus added.
Chewy's shares are in a bullish trend, and analysts see further upside as the company continues to innovate in the nondiscretionary pet products market, which makes up 85% of its revenue.