Piper Sandler has assumed coverage on Warby Parker Inc. (NYSE: WRBY) with an Overweight rating and a price target of $18.00. The firm highlighted the company's accelerating growth in the eyewear market during the first half of 2024 and the opportunities presented by its services segment.
Warby Parker has experienced a steady increase in eyewear sales, reporting an average growth of 12% in the first half of 2024, compared to 10% in 2023 and 9% in 2022. The company's success in both single-vision and higher-margin progressive lenses has been noted, along with the potential for service segment expansion.
Currently, services account for just 6% of Warby Parker's sales mix. However, there is potential for this to reach double digits as the company expands its optometrist network and begins to capitalize on insurance monetization.
The firm is optimistic about Warby Parker's revenue and profit growth algorithm, as the company continues to gain market share in the approximately $70 billion U.S. eyewear industry.
The partnership with Versant Health, a subsidiary of MetLife (NYSE:MET), which will commence in the fourth quarter of 2024, is expected to provide Warby Parker access to 34 million insured lives.
This represents about 25% of the eyewear insurance total addressable market (TAM). Marketing to these insured customers could potentially add approximately $40-$50 million in incremental sales over the next 12-18 months, which equates to a 5% increase over the 2025 consensus sales estimates.
Despite the positive outlook, Warby Parker's shares have underperformed since the second quarter of 2024 report. The stock is currently trading at 10 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) based on the firm's 2025 estimates.
This valuation is below the average of 13 times EV/EBITDA for Piper Sandler's coverage universe. Year-to-date, while sell-side estimates on Warby Parker have increased slightly, with 2025 sales and EBITDA estimates rising by 1% and 3%, respectively, the stock price has declined.
In other recent news, Warby reported a 13.3% increase in net revenue to $188.2 million for the second quarter of 2024, along with a nearly 40% rise in adjusted EBITDA to $19.6 million. Following this positive performance, Warby Parker has raised its full-year guidance for both net revenue and adjusted EBITDA, now projecting revenue to be between $757 million and $762 million, and adjusted EBITDA at $72.5 million.
Analysts have taken note of these developments, with JMP Securities upgrading Warby Parker's stock from Market Perform to Market Outperform, setting a new price target of $20.
In terms of market expansion, Warby Parker has increased its presence to 88 markets, marking a 21% increase from the previous year. This growth was supported by a notable uptick in single-vision glasses sales and a 23% year-over-year boost in marketing spending.
InvestingPro Insights
As Warby Parker Inc. (NYSE:WRBY) continues to navigate the competitive eyewear market, recent data from InvestingPro provides valuable insights. The company holds a market capitalization of approximately $1.66 billion and, despite not being profitable over the last twelve months, analysts are optimistic about the company's prospects, predicting profitability this year. This is a crucial point considering the company's P/E ratio stands at -33.15, reflecting investor expectations for future earnings growth.
InvestingPro Tips suggest that Warby Parker's balance sheet is robust, with more cash than debt, which is a positive sign for financial stability and future investments. Additionally, the company's liquid assets exceed short-term obligations, which could provide flexibility in managing cash flow and capitalizing on growth opportunities. However, it's worth noting that two analysts have revised their earnings downwards for the upcoming period, indicating potential headwinds or a more conservative outlook on performance.
The stock's recent performance has been marked by volatility, with a one-month total return of -16.2%, which may be of interest to investors looking for potential entry points or considering the stock's risk profile. The price to book ratio is currently at 5.04, which is relatively high and may reflect the market's valuation of the company's assets and growth potential. For a more comprehensive understanding of Warby Parker's financial health and future prospects, InvestingPro includes additional tips that investors may find beneficial.
With the next earnings date scheduled for November 7, 2024, and an analyst fair value target of $17, compared to the InvestingPro Fair Value of $13.73, investors will be keenly watching for Warby Parker's performance updates and how they align with market expectations.
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