William Blair analyst Dylan Carden has maintained their bullish stance on CHWY stock, giving a Buy rating on March 24.
Dylan Carden has given his Buy rating due to a combination of factors that suggest a positive outlook for Chewy’s future performance. One of the key reasons is the acceleration in net customer growth, which exceeded expectations with over 350,000 new active customers added sequentially. This growth is significant as it indicates a normalization of online migration, leading to increased sales and profitability without additional advertising costs. Moreover, the spending pattern of new customers suggests that they start with an initial spend of around $150 in their first year and gradually increase their spending to approximately $700 by the fifth year, contributing to higher margins in categories such as treats, hardgoods, and pharmacy.
Additionally, management’s optimistic guidance for 2025, which includes a sales growth target of 6%-7%, further supports the Buy rating. This target is higher than the Street’s estimate of 5%, indicating potential upside. Despite some concerns, such as weaker gross margins and the stock’s underperformance following a positive tone set at a Morgan Stanley conference, the valuation of Chewy’s shares at below 16 times the initial free cash flow estimate for 2026 presents a compelling opportunity. Carden believes that the company’s earnings growth will accelerate with a better top line, driven by increased customer growth and wallet share, while acknowledging risks such as unchecked negativity and potential deflation in the consumer packaged goods sector.
Based on the recent corporate insider activity of 48 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of CHWY in relation to earlier this year.