Investing.com -- Morgan Stanley sees the U.S. veterinary clinic market as a roughly $40 billion opportunity and has named Chewy (NYSE: CHWY ) its top stock pick to capitalize on it.
The bank launched a dedicated model for Chewy’s vet clinic expansion, estimating that every 100 clinics could add around $50 million in EBITDA and generate $500 million to $800 million in enterprise value (EV) before considering broader brand benefits.
“Vet clinics are a ~$40B total addressable market (TAM) where we believe CHWY has a path to win,” analysts led by Nathan Feather wrote, citing Chewy’s strong brand, large customer base, and established pet health infrastructure.
Chewy’s existing health business already generates over $3 billion in sales and includes the largest U.S. pet pharmacy. Morgan Stanley notes that 55% of surveyed pet owners are likely to consider Chewy clinics, rising to 80% among people under 35.
Morgan Stanley models a base case where Chewy grows to about 100 clinics by 2030, contributing an estimated $290 million in revenue and $47 million in EBITDA.
In its bull case, the company could scale to 275 clinics over the same period, generating $842 million in revenue and $126 million in EBITDA. The Wall Street firm raised its bull-case valuation from $68 to $75 per share.
Each clinic is projected to contribute approximately $2.4 million in annual revenue and $500,000 in EBITDA at maturity.
“In total, we think one clinic can turn ~$1.5M-2.0M of cash in to ~$5M-8M of enterprise value… a ~2.5-5x return,” the report said.
Morgan Stanley believes M&A may be the key to faster scaling for Chewy, with the company capable of funding about 100 clinic openings per year through just 1% of its annual revenue in capital expenditures.
“Given its large existing customer base and halo benefits, we believe CHWY could buy clinics at a premium and still be immediately accretive,” the report continued.
The analysts also highlight the highly fragmented nature of the vet industry—where the top five players account for less than 15% of the market—as an opportunity for roll-ups.
While Chewy has only opened eight clinics so far, the analysts view the segment as a long-term structural growth lever.
“We make CHWY our Top Pick and raise our Bull Case. Clinics are an added lever to an already strong core story with improving share gains and expanding margin," they concluded.
Morgan Stanley maintains an Overweight rating on Chewy in its base case, with a price target of $50.