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Shares of e-commerce pet supplies company Chewy (NYSE:CHWY) gained Monday morning, rising over 4%. The surge followed an upgrade by analysts at Needham & Company.
Needham raised its view of the stock from “Hold” to “Buy” and issued a new price target of $55. The price target implies a return of 44%.
Analyst Anna Andreeva explained her positive recommendation in a note to clients, writing, “After 4 quarters of missing consensus EBITDA (and 3 quarters of missing consensus Sales), CHWY beat expectations in 1Q22, and we think the positive momentum continued into 2Q22 …”
Andreeva pointed out that the pet category is inelastic, with price increases sticking. She also noted that the supply chain is improving, and she thinks the company’s guide for $200 million-$300 million in out-of-stocks for 2022 is conservative.
The Needham analyst also thinks the pet space looks “rational” in terms of pricing, and company-specific initiatives are driving profitability.
Additionally, Andreeva pointed out that sentiment is still largely negative with 25% of the float short and 60% of sell-side ratings at Hold.
