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Options Corner: Why The Smart Money Is Wagging Its Tail For Chewy Ahead Of Earnings

While the ongoing trade wars have imposed economic uncertainty, particularly over the retail sector, the U.S. pet supply market has demonstrated resilience. With e-commerce specialist Chewy Inc (NYSE:CHWY) set to release its earnings results on Wednesday before the opening bell, there's a high-risk, high-reward opportunity available. Essentially, speculators could front-run the possibility of positive results by digging in early.

A few important clues suggest that Chewy could pleasantly surprise Wall Street next week. First and foremost is the fundamental argument: Americans simply love their pets. A little more than one year ago, Morgan Stanley projected that average annual household spending per pet could expand from $980 in 2020 to $1,292 by this year. Also, by 2030, this metric could see a sizable boost to $1,909.

Granted, the aforementioned tariffs and the unique challenges of the present juncture add complexities to this narrative. Nevertheless, Morgan Stanley's projection benefits from credibility as various sources reported that Americans have continued to splurge on their four-legged friends despite inflationary headwinds. This backdrop should represent a net positive for CHWY stock.

Another factor to consider is analysts' favorable opinions. It's not just about the consensus Buy rating, which certainly adds confidence. Rather, it's that investment experts were optimistic about Chewy's prospects prior to the volatility associated with tariffs and their related challenges.

For example, in early January, Mizuho Securities upgraded CHWY stock to Outperform from Neutral while also raising its price target to $42. When the opinion was published, the move represented a 13.29% upswing. At this time, a pop to $42 would mean a profit of over ...