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Online home goods retailer Wayfair Inc (NYSE:W)'s fundamentals are likely to deteriorate in 2019, sending a Bank of America Merrill Lynch analyst to the sidelines.
The Analyst
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Analyst Akshay Bhatia downgraded Wayfair from Buy to Neutral and increased the price target from $130 to $160, moving his valuation basis forward from 2019 to 2020.
The Thesis
Wayfair shares have significantly outperformed the S&P 500 Index year-to-date thanks to accelerated revenue growth supported by solid customer growth and order frequency, Bhatia said in a Thursday note.
That said, the e-commerce company is likely to experience deceleration in growth and mounting investments in 2019, the analyst said. Wayfair has frequently and massively revised EBITDA and FCF downward due to a ramp in hiring to support growth investments, Bhatia said.
BofA is meaningfully below the consensus on 2019-20 EBITDA margin estimates.
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Notwithstanding the solid revenue growth, improving order trends and recent ad spend leverage, BofA said the focus will be on Wayfair's elevated expense profile as revenue growth decelerates.
Wayfair's valuation has much room for upside given the growing operating losses and likely near-term growth deceleration, possibly in Q4 and the first half of 2019, Bhatia said.
The Price Action
Wayfair shares have soared about 86 percent year-to-date.
The stock was trading down 1.3 percent to $147.56 at the time of publication Thursday.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.