3 Key Reasons Credit Suisse Turns Bullish On Wayfair

After taking a closer look at several of the more prominent bear-bull debates surrounding Wayfair Inc W, Credit Suisse is confident to make the bullish case for the online home goods and furniture company.

The Analyst

Credit Suisse's Stephen Ju upgraded Wayfair from Neutral to Outperform with a price target lifted from $117 to $130.

The Thesis

The first of three hotly contested debates among Wayfair bulls and bears is the company's longer-term growth outlook. Encouragingly, Wayfair's management team offered recent comments that its smaller international business (Canada, UK and Germany) are seeing smaller repeat order rates, cohort characteristics, and gross margins compared to the more established U.S. business. This should give investors more confidence in the company's expansion into new markets and a near-to-medium term sustainability of its category lead.

Ju said Wayfair's positive outlook by itself isn't sufficient to convert bears given ongoing pressure to Wayfair's bottom line. But the company is tackling its investments in growth from a "position of strength" and an aggressive ramp of marketing spend and headcounts would be seen as taking advantage of strong momentum. 2021 should mark the first year both the international and U.S. businesses the company sees a net profit contribution per gross customer add at $4 and $26, respectively and expand to $27 and $45 by 2024, respectively.

Finally, Amazon.com, Inc. AMZN and other online company's continue pushing into the furniture space and related concerns may be overblown, the analyst said. These include:

• Amazon's lack of a highly visual and curated platform;
• A focus on private label brands gives Wayfair an advantage of Amazon in price; and
• Although less of an advantage against Amazon, Wayfair boasts a "head start" in building out a strong supply chain system.

Price Action

Shares of Wayfair closed higher by 2.2 percent at $104.44 Monday afternoon.

Related Links:

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

Industry Strength Leads To RH Upgrade