On Monday, Loop Capital made an adjustment to the shares price target for Wayfair (NYSE:W), increasing it from $50 to $55, while keeping a Hold rating on the stock. Currently trading at $52.29, InvestingPro analysis suggests the stock is fairly valued.
The decision comes despite a reduction in the firm's forecast for Wayfair's fiscal year 2025 Adjusted EBITDA, with current EBITDA standing at -$314 million. According to Loop Capital, the updated price target is derived from long-term projections in their discounted NOPAT (net operating profit after tax) model.
The firm's analysts have adjusted their sales growth expectations for the next year from 1% to 2%, anticipating that lower interest rates will benefit home-related sales.
With current annual revenue of $11.84 billion and a revenue decline of 1.22% over the last twelve months, this adjustment is focused on the second half of the fiscal year, as third-quarter 2024 sales demonstrated a decline of 3%, which was more than the anticipated 1% drop. The Q3 Adjusted EBITDA for Wayfair not only fell short of the consensus but also of Loop Capital's own estimates.
Wayfair's management has committed to achieving growth in Adjusted EBITDA dollars by 2025, but has made no promises regarding an increase in margin rates. InvestingPro data shows the company's current gross profit margin at 30.2%, while analysts predict profitability this year despite recent challenges.
In light of this, Loop Capital has reduced their Adjusted EBITDA projection for 2025 by approximately $120 million. Nonetheless, they expect a modest recovery in revenues for 2025, forecasting a 2% increase compared to a 2% decrease in 2024.
The analyst report also highlighted Wayfair's stock performance, noting a roughly 10% year-to-date decline, in contrast to the S&P 500's 27% gain. The report touched on concerns regarding Wayfair's growth being financed by debt, especially as the cost of debt has risen significantly. Wayfair recently secured $800 million at a 7.25% interest rate in the private debt market, partially to address upcoming convertible debt maturities.
Loop Capital expressed uncertainty about when the home furnishings segment would return to being a GDP growth industry but concluded that at the current share price, the risk-reward profile appears evenly balanced.
In other recent news, Wayfair's third-quarter financial report showed a 2% year-over-year decrease in net revenue to $11.84 billion, slightly better than anticipated. The company also reported a 6.1% drop in orders, offset by a 4.4% increase in average order value. Bernstein maintained a Market Perform rating on Wayfair shares, reflecting the company's financial performance and the current industry climate.
Wayfair's fourth-quarter guidance anticipates a low single-digit year-over-year decline, while projecting adjusted EBITDA margins between 2-4%. This projection is seen as cautious by Bernstein, considering the company's current gross profit margin of 30.2%.
Despite a decrease in order growth and active customers, Wayfair's financial health score is rated as "FAIR," according to InvestingPro. The company also plans to increase advertising expenses to between 12-13% of revenue, reflecting challenges in fostering customer loyalty in a competitive market.
In other retail news, mattress and furniture retailers reported positive mid-single-digit year-over-year growth following the Black Friday sales weekend. Wayfair Inc (NYSE:W). showed strong momentum, with Wayfair's analyst consensus remaining cautiously optimistic despite some downward revisions to earnings expectations.
KeyBanc Capital Markets maintained its Sector Weight rating on Wayfair, acknowledging the company's ability to improve EBITDA and capture market share even as the industry faces headwinds. These are the recent developments in Wayfair's business operations.
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