The upward trajectory for revenue and margins at
Wayfair
is still in progress, one analyst team said as it upgraded shares of the online furniture retailer.
Bernstein analysts led by Nikhil Devnani raised their recommendation on
Wayfair
(ticker: W) to Market Perform from Underperform and lifted their price target to $65 from $60 in a report titled “Sofa, so good.”
Shares of Wayfair were gaining 3.8% to $62.80 in premarket trading. Coming into Friday’s session, the stock has soared 84% this year.
“This is more of a tactical call given improving revenue growth and margin commentary,” the analysts wrote, referring to the stock upgrade. The shares have performed well this year, they continued, and there’s potential for an increase in earnings before interest, taxes, depreciation and amortization over the next few quarters.
Revenue growth has been rising and should be able to be maintained over the next few quarters as lower prices bolster order growth, which “can continue in 2H23 as suppliers see relief from better input costs and look to move excess inventory,” the analysts explained.
Margins are another bright spot, the analysts continued, as the company said it already has the headcount required to underpin growth initiatives, which suggests further strides will be made there.
That being said, the environment could become more difficult as the second half of fiscal 2024 nears, amid an expected settling in supplier pricing, demand challenges and a tough macro environment, analysts cautioned. “Wayfair needs a beat and raise cycle on EBITDA,” they wrote.
And in regard to Investor Day targets for longer-term profitability goals, analysts are penciling in roughly 10% adjusted EBITDA margin, while management said it eventually expects margins of 10% or more.
“We think it’s going to be challenging to significantly re-accelerate the top-
line and drive massive margin expansion with
Amazon
as a primary competitor,” analysts wrote. “To bridge the gap, we need to see the company grow responsibly vs. expensive growth in prior years.”
Last month, the company blew past second-quarter revenue and adjusted earnings estimates.
Write to Emily Dattilo at [email protected]
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