On Thursday, Evercore ISI raised its stance on Wayfair Inc . (NYSE:W), shifting from an "In Line" rating to "Outperform" and increasing the price target to $80 from the previous $65. The firm anticipates that Wayfair, which is approaching its 10th anniversary as a publicly traded company, will experience revenue acceleration and gain market share in the home furnishing market, which is expected to recover cyclically.
The upgrade comes with the belief that Wayfair's risk/reward profile is appealing, as the company has implemented cost-cutting measures that have established a solid foundation for adjusted EBITDA, reducing downside risk and enhancing potential upside as revenues begin to grow again. Wayfair's short interest, which remains high, and its position as one of the few home-related stocks yet to benefit from a potential housing recovery in the second half of 2024, were also noted as factors contributing to the positive outlook.
Wayfair has initiated approximately $2 billion in cost reductions since 2022, which are projected to help achieve EBITDA margins of over mid-single digits in 2024, even if revenue remains flat year over year.
The company is expected to post a 5.4% EBITDA margin, which is a 280 basis point improvement, despite an approximate $100 million regression in revenue compared to the previous year. The analyst highlighted that the most challenging phase of expense reduction is over, and they anticipate sales to improve without the hindrance of past operational inefficiencies.
The report also points out that Wayfair's current global market share of less than 2% suggests there is substantial room for growth. The company's expansion of its brick-and-mortar footprint is seen as a strategic move to facilitate this growth.
The analyst believes that the market has yet to fully appreciate Wayfair's potential for margin improvement, which presents an opportunity for a significant revaluation in the near future. The $80 price target is based on a 13 times multiple of the company's estimated 2025 EBITDA.
InvestingPro Insights
As Wayfair Inc. (NYSE:W) approaches a significant milestone, real-time data from InvestingPro offers additional context to its financial standing and market performance. With a market cap of $7.52 billion and a notable one-year price total return of 74.14%, Wayfair has demonstrated a high return over the last year, aligning with Evercore ISI's optimistic assessment. The company's stock has experienced volatility, as indicated by a recent 8.06% decline over the past week, which may present a buying opportunity for investors who believe in Wayfair's long-term prospects.
Despite not being profitable over the last twelve months and a negative P/E ratio of -9.93, analysts predict that Wayfair will be profitable this year. This projection is crucial for investors considering the company's future earnings potential. Furthermore, Wayfair's aggressive cost reductions and the absence of dividend payments, as noted in the InvestingPro Tips, suggest a reinvestment strategy aimed at fueling growth and improving margins.
For those seeking more in-depth analysis, InvestingPro provides additional insights, including more InvestingPro Tips for Wayfair, which can be accessed at https://www.investing.com/pro/W. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the full range of valuable metrics and expert insights available.
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