Can Chewy reach its growth targets and double its stock price in 2025?

According to investment bank Morgan Stanley, Chewy is projected to hit EBITDA (earnings before interest, taxes, depreciation and amortization) of $750 million (€673.6M) to $800 million (€763.5M) in fiscal year (FY) 2025. 

Their analysis anticipates a 6.1% earnings growth for FY2025, compared to 5.5% in FY2024.  

This is supported by the company’s efforts to expand its growth through initiatives such as sponsored ads and automation upgrades in its distribution centers, which are running at 75% capacity.

Although revenue growth is expected to be modest at around 4.7% in FY2025, Morgan Stanley notes that Chewy is still seen as a leader in the US pet market.

The pet retailer’s income per active customer is also forecast to rise from $554 (€496.78) to $586.50 (€525.92), aided by the company’s expanding product offerings in areas like pharmacy, private label products and pet health services.

Stock price increase

With Chewy’s stock price sitting at $26 (€23.31) in September 2024, analysts have predicted this to rise to anywhere from $49 (€44) to $53 (€47.53) in 2025, projecting a maximum 102.6% increase. The company is also forecast to reach $1 billion (€898.2M) in EBITDA by FY2026.

Adjustments in selling, general and administrative expenses (SG&A), i.e., all non-production costs, are likely to contribute toward the FY2025 predictions.

Analysts also point to a projected -1% year-on-year (YoY) reduction in fulfillment costs per order (merchant fees and customer service).

According to Morgan Stanley, Chewy has consistently managed expenses effectively, even during inflationary periods such as 2020 and 2021.

Risks remain

Despite the optimistic outlook, several risks could impede Chewy’s margin expansion. 

The main one is the broader pet market, which, if it weakens, could force Chewy to increase investment or lose efficiency. 

Another risk is the company’s vet clinic expansion; analysts view this investment as modest, with only 8-10 openings in FY2024.

Increased promotions may push Chewy to spend more on acquiring customers through discounts and hurt profit margins.

It’s worth noting that Chewy’s most recent quarter was strong, with YoY sales in Q2 2024 increasing by 2.6% against last year.