BofA Reinstates Coverage Of Overstock With Buy Rating, Says Turnaround Still In Early Stages

Overstock.com Inc (NASDAQ: OSTK) has been outperforming primary competitor Wayfair Inc (NYSE: W) and should continue to benefit from the secular shift to online shopping, according to BofA Securities. 

The Overstock Analyst: Bank of America analyst Curtis Nagle initiated coverage of Overstock with a Buy rating and $89 price target.

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The Overstock Takeaways: In the initiation note, Nagle said

“Under new management, OSTK has exited unprofitable categories, deconsolidated a resource intensive blockchain business and turned the company’s focus on profitably growing the core furnishings segment.” 

Bank of America projects online sales will account for 27% of home furnishings sales in 2021, up from just 17% in 2019.

Nagle expects that trend will continue and is forecasting online sales will account for 34% of home furnishings sales by 2025. The total U.S. home furnishings market today is roughly $200 billion, and Nagle says Overstock has just 5% of that market share.

He estimates Amazon.com, Inc. (NASDAQ: AMZN), Wayfair and Williams-Sonoma, Inc. (NYSE: WSM) have a combined 55% of that online market share.

Nagle is projecting Overstock’s EPS will more than triple from $1.11 in 2020 to $3.73 by 2023. He is calling for 11% sales growth off of difficult pandemic comps in 2021, 11.9% sales growth in 2022 and 15.4% sales growth in 2023.

Overstock’s home furnishings business was effectively ignored for several years while the company invested heavily in its blockchain business, so Overstock is likely still early in its turnaround story at this point, the analyst said. 

Benzinga’s Take: It’s interesting that Nagle barely mentioned Bitcoin (OTC: BTC) and blockchain as reasons to like Overstock given the stock has become a popular blockchain play.

At this point, it appears the analysts has faith enough in the legacy home furnishings business to recommend Overstock, but the blockchain investments certainly provide some long-term upside potential.