Although Wayfair Inc W seems well positioned to gain significant share in the home furnishings markets, a lack of clarity into the company’s potential for profitability could hold back the stock, according to UBS.
The Analyst
Michael Lasser initiated coverage of Wayfair with a Neutral rating and $125 price target.
The Thesis
Wayfair performs well on data and delivery, both of which are “critical future frontiers in retail,” Lasser said in the initiation note.
The company address a total available market of around $400 billion in the U.S., and its competitive advantages related to data and delivery should allow it to grab a bigger share, the analyst said.
Wayfair’s penetration of U.S. households should increase from an estimated 9% to 15% by fiscal 2021 and 18% by fiscal 2023, Lasser said.
He expects this to enable the company to gain further share of the online market and meet the consensus expectation of 20-30% U.S. revenue growth over the next few years.
Wayfair has significant runway for International growth as well, since its sales constitute below 1% in relevant markets, the analyst said.
The company faces macro uncertainty due to tariffs and “volatile consumer confidence,” Lasser said.
While saying that concerns around Wayfair’s enterprise level profitability could persist, the analyst recommended that investors look for a “better entry point for the stock.”
Price Action
Shares of Wayfair were up 1.96% at $118 at the time of publication.
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