Analyst: Tougher 2018 Setup Likely To Weigh On Wayfair

Wayfair Inc (NYSE: W) shares moved up nearly 130 percent in 2017, but one Wall Street analyst projects a deceleration in growth for the e-commerce name. 

The Analyst

Bank of America Merill Lynch’s Akshay Bhatia downgraded Wayfair from Buy to Neutral and increased the price target from $72 to $88.

The Thesis:

One of the best performing stocks in the market in 2017, home goods e-commerce retailer Wayfair initially had a positive setup into January and February, but new catalysts are positioning the company for a tougher 2018, Bhatia said. 

Although Wayfair continues to penetrate the home goods category and build out its delivery network — now in over 15 cities — Bhatia said increasing investments and marketing spending are likely to weigh on margins, and that Wall Street estimates are too aggresive on margins.

Fierce category competition, with Amazon.com, Inc. (NASDAQ: AMZN) coming in strong in BofA’s home furnishing survey, led the analyst to downgrade Wayfair. Bhatia did raise the price target on the company to $88 from $72.

“In the near term, we think Wayfair can beat 4Q estimates and show strong growth through February ’18, as sales were depressed on more limited marketing spend last 4Q,” the analyst said. 

“We may be too early with our downgrade given 4Q upside potential and easy comps through February, but we think tougher growth comps from March ’18 onward coupled with an expense ramp from hiring, advertising and more logistics spend could limit multiple expansion going forward.”

Price Action:

Wayfair shares fell over 2 percent following the downgrade and closed down 3.17 percent at $78.45 on Wednesday. 

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