Why Chewy Stock Ticked Higher on Thursday

Key Points

• The pet supplies company was the beneficiary of not one but two analyst upgrades.

• It was raised to a buy in both instances.

• 10 stocks we like better than Chewy ›

Usually, a stock that gets an analyst recommendation upgrade also gets a share price pop. On Thursday, Chewy (NYSE: CHWY) was fortunate enough to be the beneficiary of two such moves, and as a result its shares closed the day almost 3% higher in price. This was during a trading session when the S&P 500 index mustered a relatively low 0.9% increase.

Barking up the right tree

The first of the two upgrades was made by Seaport Global Securities's Aaron Kessler. That morning, Kessler upped his recommendation to buy from the previous neutral, at a price target of $47 per share. That's 30% above the company's most recent closing stock price.

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The analyst's move came a day after Chewy reported its second-quarter results. According to reports, Kessler waxed bullish in his update about the company's strong year-over-year revenue growth of nearly 9%, accompanied by quite robust gross margins.

Chewy was actually punished by the market for its performance during the period, and Kessler clearly feels this is unjustified. In his view, the negative reaction stemmed from increased selling, general, and administrative costs, plus higher investments anticipated in the second half of this year. However, he wrote that these investments are strategic and should boost fundamentals.

Promising programs

A bit later that morning, Deutsche Bank's Leo Horowitz also upgraded Chewy to buy from neutral, upping his price target to $45 per share from $38 in the process. Among other factors, according to reports, Horowitz flagged appealing company initiatives such as the Chewy+ Membership program as likely growth drivers.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.