Goldman Sachs Downgrades Wayfair To Neutral, Removes From Americas Buy List

Wayfair Inc (NYSE: W) shares have declined 4 percent since the beginning of February, as compared to the 14 percent rise in the S&P and the 10 percent increase in the S&P Retail Index.

Goldman Sachs’ Matthew J. Fassler downgraded the rating on the company from Buy to Neutral, while lowering the price target from $46 to $43.

Reasons For Downgrade

Removing the stock from the Americas Buy List, Fassler mentioned there were three reasons for the downgrade.

Firstly, Wayfair is “deploying more fixed investment against a lower revenue outlook than we had modeled. New 3Q guidance, below our prior model, looks beatable, but a goal of 4Q EBITDA breakeven looks aggressive,” the analyst stated.

Fassler also pointed out the deceleration in sales momentum, as well as the expected decline in earnings.

However, the analyst also noted, “This is one of the few public ecommerce firms, and has scarcity value as such, and is clearly disrupting the market/capturing share.”

Limited Visibility

Fassler expects Wayfair to see significant share gains and improvement in profitability going forward, although the path to achieving the Q4 guidance appears less clear, especially given the slower start to revenues in Q3 and the higher than expected cost base.

“These dynamics are embedded in the 3Q guide, but 4Q expectations – still standing – set a lofty bar,” Fassler elaborated.

The analyst expects the combination of moderating momentum and limited visibility into an upside in Q4 to impact stock performance.

The adjusted EBITDA and EPS estimates for Q3 have been reduced.

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