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BofA Cites Growth Deceleration, Elevated Expenses, Valuation In Neutral Turn On Wayfair

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BofA Cites Growth Deceleration, Elevated Expenses, Valuation In Neutral Turn On Wayfair
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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

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. 

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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Latest Ratings for W

DateFirmActionFromTo
Sep 2018Bank of AmericaDowngradesBuyNeutral
Sep 2018Wells FargoReinstatesMarket Perform
Aug 2018Canaccord GenuityMaintainsBuyBuy

View More Analyst Ratings for W
View the Latest Analyst Ratings

Posted-In: Akshay Bhatia Bank of America Merrill LynchAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

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