What happened
Shares of the e-commerce pet food and supply company Chewy (CHWY 0.81%) are down by 5.8% as of 10:53 a.m. ET Thursday. The company's shares appear to be moving lower yet again this morning in response to yesterday's downgrade by investing firm Morgan Stanley.
Wednesday, Morgan Stanley analyst Lauren Schenk trimmed her 12-month price target on the stock from $32 to $31 a share. Schenk's current price target implies that Chewy's shares could fall by another 21% from current levels. The company's stock is presently down by 9.85% since this analyst downgrade became public knowledge.
So what
Although Schenk didn't provide much in the way of details in her note yesterday, other analysts covering the stock have raised concerns about the strength of Chewy's discretionary item business in 2023. This segment currently makes up about 20% of the company's annual revenue.
If a mild economic recession hits the U.S. this year, this key component of the company's revenue stream will likely take a hit. Chewy, in turn, is at risk of posting a modest net loss for the year.
Now, a marginal net loss for an emerging e-commerce business like Chewy isn't the end of the world. But the company's shares have been trading at a sizable premium (149.7 times 2025 estimated earnings) of late. This means nervous investors might be taking this opportunity to lower their exposure to this premium-laden growth stock.
Now what
The good news is that Schenk's downbeat view isn't unanimous among Wall Street analysts. CFRA analyst Arun Sundaram, for instance, recently tagged the pet e-commerce equity with a $45 price target, citing the company's potential for international expansion, profit margin expansion, and further vertical integration as reasons investors might want to hold tight to Chewy.
