Last Update 03 Dec 25

Fair value Decreased 1.10%

CHWY: Chewy+ Membership Price Increase Will Expand Long-Term Profit Potential

Analysts have nudged our fair value estimate for Chewy slightly lower, from approximately $45.45 to $44.95 per share. This reflects a modestly higher discount rate and only incremental improvements to revenue growth and long term profitability, despite generally supportive price targets tied to the Chewy+ membership opportunity and reinvestment driven share gains.

Analyst Commentary

Street research following Chewy's latest quarter has skewed constructive, with multiple upgrades and generally supportive ratings even as several firms trimmed price targets. The consensus narrative emphasizes the durability of Chewy's growth story and the strategic nature of near term reinvestment, while acknowledging execution risks around margins and operating expenses.

Bullish Takeaways

Bullish analysts point to the price increase on the annual Chewy+ membership as evidence of early product market fit, with the higher fee seen as expanding long term gross profit dollars and supporting upside to revenue into fiscal 2026.
Several upgrades from Neutral or Hold to Buy or Outperform suggest that risk reward has improved after the post earnings selloff. Current levels are viewed as attractive relative to long term growth potential and the firm’s ability to gain share in a stable pet category.
Supportive commentary highlights Chewy’s reinvestment in new categories, logistics, and customer acquisition as rational. These initiatives are seen as positioning the company for faster top line growth and improved operating leverage beyond 2025.
JPMorgan and other bullish analysts describe the recent pullback as overdone, arguing that the combination of steady customer additions, a compelling subscription offering, and a growing addressable market underpins fair value estimates above the current price.

Bearish Takeaways

Bearish analysts remain focused on elevated operating expenses and incremental investments that compress margins in the back half of the year. They view this as a constraint on near term earnings power and free cash flow.
Several firms have reduced price targets, reflecting more cautious assumptions on gross margin. Street estimates for the coming quarters still appear ambitious relative to management’s reinvestment plans.
There is concern that the pace of margin expansion is lagging prior expectations. Slower progress raises questions about how quickly Chewy can translate revenue growth and membership gains into sustainably higher profitability.
Even among generally positive voices, some see a narrower margin of safety in valuation if execution on share gains, membership monetization, and operating discipline slips. This is seen as leaving the stock vulnerable to further estimate cuts.

What's in the News

Chewy raised its full year 2025 net sales outlook to between $12.5 billion and $12.6 billion, implying 7% to 8% year over year growth and a $175 million increase at the midpoint of guidance. (Corporate guidance)
The company issued third quarter 2025 guidance calling for net sales of $3.07 billion to $3.1 billion, also targeting 7% to 8% year over year growth. (Corporate guidance)
Chewy launched Get Real, a new line of minimally processed fresh dog food with human grade ingredients and expert created recipes, expanding its presence in the fast growing fresh pet food segment. (Product announcement)
Chewy continued to return capital to shareholders through share repurchases, completing tranches totaling more than 7.1 million shares for approximately $241 million under buyback programs announced in 2024 and 2025. (Buyback updates)
New premium pet apparel brands, including ororo Heated Apparel and NYC based pupp st., debuted on Chewy, broadening its assortment in functional and fashion forward dog wear. (Client announcements)

Valuation Changes

Fair Value Estimate edged lower from approximately $45.45 to $44.95 per share, reflecting a modestly more conservative outlook.
Discount Rate risen slightly from about 8.17% to 8.34%, modestly increasing the required return applied to future cash flows.
Revenue Growth ticked up marginally from roughly 7.52% to 7.59%, indicating a slightly stronger long term top line trajectory.
Net Profit Margin eased fractionally from about 3.26% to 3.24%, suggesting minimal change to long run profitability assumptions.
Future P/E increased from approximately 46.5x to 49.9x, implying a somewhat higher multiple on expected earnings despite the lower fair value estimate.

Strategic expansions and 1P ad platform enhancements aim to increase revenue and customer engagement, positively impacting gross margins and long-term profitability.
Innovation and improved marketing are set to boost customer growth, conversion rates, and net sales, supporting top-line revenue expansion.
High reliance on the Autoship program and modest customer growth present risks to revenue stability, while expansion efforts face uncertainties impacting diversification and profitability.

Catalysts

About Chewy

Engages in the pure play e-commerce business in the United States.What are the underlying business or industry changes driving this perspective?

Chewy's strategic expansions, such as opening new Chewy Vet Care Clinics, are expected to further penetrate the $25 billion vet services market, likely increasing revenue and active customer engagement in 2025 and beyond.
The migration to a 1P ad platform allows for enhanced advertising capabilities, including off-site ads and new content formats like video, which could grow the sponsored ads business up to 3% of total enterprise net sales, positively impacting gross margins.
The company's increased focus on innovation, such as the Chewy+ membership and mobile app improvements, is driving new customer acquisition and higher conversion rates, enhancing both revenue growth and net sales per active customer (NSPAC).
Active customer growth has reached an inflection point, with expectations for continued growth in 2025 due to improved marketing strategies and customer acquisition channels, positively affecting top-line revenue.
Chewy is on a path to achieving its long-term target of a 10% adjusted EBITDA margin by continuing to expand gross margins and achieve SG&A leverage, thereby improving overall profitability and shareholder value.

Chewy Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Chewy's revenue will grow by 7.7% annually over the next 3 years.
Analysts assume that profit margins will shrink from 3.2% today to 3.1% in 3 years time.
Analysts expect earnings to reach $467.3 million (and earnings per share of $1.14) by about September 2028, up from $388.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $375.1 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.6x on those 2028 earnings, up from 44.8x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.7x.
Analysts expect the number of shares outstanding to decline by 0.76% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.17%, as per the Simply Wall St company report.

Chewy Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

There is risk associated with the high level of reliance on the Autoship program, which represents over 80% of sales. If consumer preferences change or if there are disruptions in subscription services, there could be a negative impact on revenue stability and top-line growth.
The growth in active customers is modest, with year-over-year improvements after eight quarters of decline. Slow growth in customer acquisition poses a risk to revenue expansion and long-term market share.
The long-term adjusted EBITDA margin goal of 10% may be optimistic if there are unforeseen cost increases or if expected efficiencies from automation and new business ventures do not materialize, potentially affecting earnings and profitability.
Projected low inflation raises concerns about limited pricing power, which could affect gross margins and overall profitability if cost pressures arise or competitive pricing leaves little room for margin growth.
Dependence on expansion into new areas such as Veterinary Care Clinics (CVC) and sponsored ads comes with uncertainties. If these initiatives do not perform as expected, there could be adverse effects on revenue diversification and margin improvement.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $46.381 for Chewy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $52.0, and the most bearish reporting a price target of just $33.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $15.1 billion, earnings will come to $467.3 million, and it would be trading on a PE ratio of 50.6x, assuming you use a discount rate of 8.2%.
Given the current share price of $42.1, the analyst price target of $46.38 is 9.2% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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