Morgan Stanley resets staggering Chewy stock target

Chewy (CHWY) posted record profits, beat earnings expectations, and added nearly 200,000 net customers in its latest quarter.

Then investors pushed the stock to its lowest level in over a year.

The sell-off followed a revenue guidance cut.

Chewy trimmed its organic full-year fiscal 2026 revenue outlook, citing a softer consumer spending environment for pet products.

Over five trading sessions that followed, the stock fell more than 11%, closing Wednesday, June 10, at $18.77.

Morgan Stanley took a different view.

In a June 10 research note shared with me, the firm maintained its Overweight rating on Chewy and set a $42 price target, trimming it by just a dollar from the prior $43.

At Wednesday's closing price, Morgan Stanley's target implies more than 120% upside.

Why Morgan Stanley still sees Chewy stock more than doubling from $18.77

Morgan Stanley, after reviewing both the guidance cut and the company's underlying results, still believes Chewy trades far below its actual worth, describing the current stock price as disconnected from the company's intrinsic value.

The valuation case for Chewy at current prices

At $18.77, Chewy trades at approximately 7 times its expected 2027 EBITDA and 19 times its expected 2027 earnings.

EBITDA is a measure of how profitably a company runs its core operations.

The firm views both multiples as well below what a business with Chewy's long-term growth profile should command.

One factor that anchored Morgan Stanley's conviction was Chewy's decision not to cut its profit margin forecast.

The company held its full-year fiscal 2026 adjusted EBITDA margin guidance at 6.6% to 6.8%, even as it lowered revenue expectations.

That mainatined forecast signals that Chewy's cost structure remains intact as sales growth slows.

Bloomberg &sol Getty Images

What Chewy's first quarter of fiscal 2026 actually showed

Chewy reported net sales of $3.36 billion for the first quarter of fiscal 2026, ended May 3, up 7.7% year over year, according to Chewy's Q1 2026 earnings release filed with the SEC.

Net income reached $94.8 million, more than 51% above the prior year.

CEO Sumit Singh cited "record profitability" despite a tougher consumer environment, as the company confirmed nearly 200,000 net new customer additions.

More Consumer and Pet Stocks:

• Major pet supplies store franchisee files Chapter 11 bankruptcy
• Major pet supplies store operator files Chapter 11 bankruptcy
• BofA makes blunt call on Target stock price after guidance

Alongside those results came the guidance cut.

Chewy trimmed its organic fiscal 2026 full-year revenue forecast by approximately 215 basis points, or about 2.15 percentage points, citing softer pet spending conditions.

Petco (WOOF) fell 12% in a single session on June 4 after its own guidance disappointed investors, while the American Pet Products Association (APPA) projects overall U.S. pet spending at $165 billion in 2026.

Three conditions that need to develop before Chewy reaches $42

Morgan Stanley's price target does not rest on optimism alone.

The firm identified three specific factors that would need to materialize for the stock to hit $42, and all three are currently works in progress.

What Morgan Stanley says must happen before $42 becomes a reality

• Positive customer adds must continue. Chewy added nearly 200,000 net customers last quarter, and Morgan Stanley views sustained active customer growth as essential to any revenue recovery. A return to negative net additions would directly undermine the trajectory the firm projects.
• Vet clinic expansion must gain traction. Chewy has been building a veterinary clinic network as a new revenue stream, extending beyond online retail and into healthcare services. Morgan Stanley cited this as a key positive indicator, as vet services are one of the fastest-growing segments of the pet industry.
• The macro environment must stabilize. The firm described the near-term path for revenue catalysts as uncertain, and acknowledged that further softness in consumer pet spending is the most significant risk to the $42 thesis. When conditions improve, Morgan Stanley expects revenue growth to accelerate.

Chewy vs. the S&P 500: the five-day selloff in context

Chewy's five-day decline of more than 11% came during a week of broad market weakness.

The S&P 500 fell 1.62% on June 10 alone, closing at 7,266.99, after a Consumer Price Index report put annual inflation at a three-year high of 4.2%.

Related: Morgan Stanley sets first-ever Cerebras stock price target

Chewy's selloff ran at more than twice the pace of the broader index, moving the stock from a 52-week high of $43.84 to near its 52-week low of $18.38.

The proximity of that 52-week high to Morgan Stanley's $42 target shows the stock has traded near those levels within the past year, which grounds the firm's valuation case in recent market history rather than abstract projection.

What Morgan Stanley's Chewy call means for investors watching the stock

Morgan Stanley's Overweight thesis rests on the idea that the current price reflects too much pessimism about manageable risks, and too little credit for the business drivers that remain intact.

The three signals Morgan Stanley says the market is underpricing

• Strong cohort dynamics. Customers who joined Chewy in recent years are spending more over time, supporting long-term revenue visibility even when new customer growth slows.
• Active customer retention. The company added nearly 200,000 net customers last quarter despite a softer spending environment, placing it in a stronger competitive position than peers losing customers to competitors.
• Vet clinic expansion. A new healthcare revenue category that could add meaningfully to Chewy's overall results over time, separate from its core pet product business.

The firm also lowered revenue estimates by 1% for both fiscal 2026 and fiscal 2027, and trimmed EBITDA estimates by 1% for fiscal 2026 and 3% for fiscal 2027, reflecting real near-term headwinds.

For longer-term investors, the gap between $18.77 and $42 represents a significant potential return, though Morgan Stanley acknowledged near-term catalysts remain unclear.

The $42 target is a long-term call based on conviction, not a near-term trade.

Related: Morgan Stanley shares key IPO realities for new investors