Analyst Zachary Fadem reiterated an Underweight rating on Wayfair (ticker: W) Friday, while cutting $5 from his target price, to $45.
The move comes ahead of the company’s upcoming second-quarter results, due out next week, as Fadem sees to big headwinds facing the online home furnishings firm. The first is that visibility into sales trends is “increasingly murky” for a host of reasons: Not only did consumers already buy much of the home goods they needed during the pandemic, but inflation has crimped many Americans’ budgets at the same time that higher mortgage rates are weighing on the housing market. All of that means that Wayfair —and peers—face tough questions about their revenue outlook.
His second concern is the fact that Wayfair “continues to spend aggressively on long-term growth,” a fact that may seem prudent in one sense, but also throws into question whether or not it can finally pivot to profits from losses in the nearer term. (Consensus estimates call for the company to lose money every quarter this year and next, according to FactSet . )
Ultimately, Fadem remains cautious on the stock, as he expects “underlying challenges to persist through the second quarter (and third quarter to date), gross margin pressures to widen (via inflation, expanding category promotions, etc.)” as well as what looks like another quarter of declining earnings before interest taxes, depreciation, and amortization margins.
Wayfair shares are edging down 0.2% in recent trading to $52.52. They’ve dropped more than 73% this year, and the stock dropped after its prior earnings report, delivered in early May.
Fadem isn’t alone in his skepticism. Nine of the 31 analysts tracked by FactSet also rate Wayfair at Sell or the equivalent, while only 8 are bullish.
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