Chewy (NYSE:CHWY) shares rose around 2% intra-day today after Piper Sandler analysts upgraded the stock to Overweight from Neutral, raising the stock's price target to $35 from $22 per share. The firm cites Chewy's potential profitability inflection point, despite muted top-line growth trends.

Analysts point to improving gross margins, driven by a shift toward higher-margin revenue streams and better control over discounting, as key factors. Chewy's discounting levels were notably lower in Q2/24, showcasing disciplined promotional activity. Additionally, operational efficiencies, such as automation and SG&A leverage, are contributing to enhanced profitability.

Though declining net ads have weighed on investor sentiment over the past six quarters, analysts are cautiously optimistic as Chewy has begun seeing positive pet adoption trends for the first time since 2021. Piper Sandler's survey also indicates ongoing strong interest in pet ownership, supporting Chewy's future growth prospects.