Barclays Drops Bearish Wayfair Rating, Sees 'Little Reason' For Stock Multiple Contraction

The bearish case for online furniture company Wayfair Inc (NYSE: W) can no longer be justified after Wednesday's earnings report showed the COVID-19 pandemic spurred "extraordinary demand" that wouldn't have otherwise existed, according to Barclays.

The Wayfair Analyst: Adrienne Yih upgraded Wayfair from Underweight to Equal Weight with a price target lifted from $153 to $321.

The Wayfair Thesis: The case against Wayfair's stock no longer applies, as Wayfair should continue showing sales acceleration, a sustainable path to profitability and improving free cash flow trends, Yih said in the Thursday upgrade note.

The reason for these trends is directly traceable to the pandemic, as more consumers are suddenly in need of home improvements and furniture upgrades, the analyst said. 

Wayfair deserves credit for leveraging its competitive advantages in data analytics and solidifying itself as a first mover to address digital demand for home products, she said. 

A longer-term trend of households moving away from densely populated urban regions to suburbs represents an "even more impactful" trend on which Wayfair can capitalize, Yih said. 

Looking forward, the addition of a year's worth of new customers within the most recent quarter makes the likelihood of Wayfair "comping the comp highly probable," the analyst said. 

Altogether, there is "little reason" for Wayfair's stock multiple to contract moving forward, according to Barclays. In fact, the stock is still trading at a reasonable multiple of around 2x EV/sales on fiscal 2021 estimates.

W Price Action: Shares of Wayfair were trading 3.37% higher at $312.05 at last check Thursday.

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