Online furniture retailer Wayfair (NYSE:W)'s shares have been upgraded from Underperform to Market Perform by a team of analysts at Bernstein, led by Nikhil Devnani. This comes in response to the company's upward revenue and profit margin trend, as well as an impressive 84% growth in share value this year alone, according to the report released on Friday.
The company's stock also reflected this positive trajectory, with a 3.8% increase observed in premarket trading. Furthermore, Bernstein raised their price target for Wayfair from $60 to $65.
The upgrade is attributed to Wayfair's improved revenue growth and promising margin prospects. The analysts foresee the potential for a rise in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the forthcoming quarters.
Lower prices driving order growth are expected to continue propelling revenue growth over the next few quarters. This is further supported by suppliers experiencing relief from improved input costs and aiming to shift surplus inventory.
In terms of profit margins, Wayfair has already reached the necessary headcount to support its growth initiatives, suggesting further advancements are likely. For the longer-term profitability goals set for Investor Day, analysts project around a 10% adjusted EBITDA margin, aligning with Wayfair management's own expectations of margins reaching or exceeding 10%.
However, as the second half of fiscal 2024 approaches, Bernstein analysts warned of potential challenges including a possible stabilization in supplier pricing, demand issues, and a difficult macroeconomic environment. They noted that Wayfair needs to outperform and raise EBITDA projections.
Despite these positive forecasts, the analysts acknowledged that outpacing top-line growth and achieving significant margin expansion could be challenging due to competition from major players like Amazon (NASDAQ:AMZN). They indicated that responsible growth is essential to bridge this gap, as opposed to the costly growth strategies of previous years.
In the second quarter of the year, Wayfair surpassed revenue and adjusted earnings estimates, further bolstering its positive financial outlook.
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