Chewy’s margin development “convincing and underestimated”

Investing.com – Chewy’s (NYSE:) future margin outlook is “compelling and underestimated,” according to Morgan Stanley analysts.

In a note to clients on Friday, analysts reiterated their “overweight” rating on the stock, arguing that the online pet food retailer is on a “realistic” path to deliver core earnings of over $750 million, or a margin of over 6.1 percent, in fiscal 2025. The mark is 12 percent above Wall Street consensus estimates, they noted.

According to analysts, Florida-based Chewy has shown “strong cost discipline” so far this year as well as “disproportionately” exceeded earnings before interest, taxes, depreciation and amortization (EBITDA).

They added that they see “an increased probability of our raised $53 bull case (~100% upside potential) which [Chewy] to reach[ing] “$800 million EBITDA in FY25 and >$1 billion in FY26.”

“Chewy is our favorite name in [small- to medium-cap ecommerce businesses],” said Morgan Stanley analysts.

In August, Chewy announced it had 20 million active customers, while net revenue per active customer rose to an all-time high. The company reported better-than-expected second-quarter results and said it now expects revenue of $2.84 billion to $2.86 billion in the current quarter — above FactSet estimates. Chewy also raised its full-year adjusted EBITDA margin forecast to 4.5 percent to 4.7 percent. The company's shares jumped at the time.

Much of the business was driven by Chewy's monthly subscription offering, which offers pet products such as food and litter to U.S. customers through both its website and mobile app. As of early U.S. trading on Friday, Chewy had a market capitalization of $11.06 billion.

Chewy also attracted attention earlier this year when well-known meme stock trader Keith Gill – known online as “Roaring Kitty” – announced that he had invested $245 million in the company.