Why Chewy (CHWY) could be well-positioned for a recovery

Given the noticeable improvement in the company's earnings outlook, Chewy (CHWY) appears to be an attractive pick. The stock has shown strong performance recently, and the momentum could continue as analysts continue to raise their earnings forecasts for the company.

Growing optimism among analysts about this online pet store's earnings prospects is driving up estimate revisions, which should be reflected in the stock price. Finally, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock evaluation tool – the Zacks Rank – is primarily based on this finding.

The five-tier Zacks Rank system, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive, outside-audited track record of outperformance, with Zacks Rank #1 stocks delivering an average annual return of +25% since 2008.

Consensus estimates for Chewy's earnings for the next quarter and full year have risen sharply, as there was broad agreement among analysts to raise estimates.

Estimate revisions for the current quarter

The earnings estimate of $0.23 per share for the current quarter represents a change of +53.33% from the figure reported a year ago.

The Zacks Consensus Estimate for Chewy has moved 208.57% over the past 30 days, as seven estimates moved higher while there were no negative revisions.

Estimate revisions for the current year

The company is expected to report full-year earnings of $1.14 per share, representing a change of +65.22% from the prior year.

In terms of estimate revisions, the trend for the current year also seems to be quite encouraging for Chewy. Over the past month, six estimates have moved upwards while there have been no negative revisions, helping the consensus estimate increase by 43.11%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Chewy currently has a Zacks Rank #2 (Buy). The Zacks Rank is a proven rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here.

Our research shows that stocks with Zacks Ranks 1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Conclusion

Chewy shares have gained 22.6% over the past four weeks, suggesting that investors are betting on the impressive estimate revisions, so you might consider adding the company to your portfolio right now to capitalize on its earnings growth prospects.

Want the latest recommendations from Zacks Investment Research? Download the 7 best stocks for the next 30 days today. Click here to get this free report

The story continues

Chewy (CHWY): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research