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Wayfair 125% Rally Defies Amazon Effect as Shorts Take Lumps

  • E-commerce stock up 125 percent this year amid retail slump
  • Buckingham boosts target to $95, says Amazon threat abating

While the rest of retail buckles under Inc., one online furniture purveyor has managed to add $4 billion in market cap this year as its shares doubled. What’s the deal with Wayfair Inc.?

The e-commerce firm has shrugged off talk of the Amazon threat as well as repeated short calls from Citron Research’s Andrew Left, whose missives have tanked other stocks. It’s up 125 percent this year and closing in on $7 billion of equity value.

Almost needless to say given how badly everyone else is doing, the Boston-based company is the best performer in the S&P Retail Select Industry Index, which has fallen 11 percent this year. And some analysts see more upside ahead. Buckingham Research Group’s Kelly Halsor said in a note to clients Thursday that Wayfair’s multiple “is still undervaluing the potential for future revenue beats and Ebitda upside over the coming quarters.”

Wayfair should benefit from a growing online home furnishings market in the U.S., which is expected to increase to $36 billion in 2018 from $27 billion in 2016, Halsor said. At the same time, “it is less likely that Amazon will pursue a more aggressive strategy” in the furniture industry after its planned Whole Foods deal. Halsor, who has a buy rating on the stock, raised her price target to $95 from $72, the highest among analysts tracked by Bloomberg and implying another 26 percent upside.

Short Interest

While the stock has seen stellar gains, bearish investors have been forced to cover positions, with short interest falling to 13 percent of float, down from around 33 percent at the start of the year. Buckingham’s Halsor expects short interest to continue to decline as Wall Street’s revenue estimates move higher this year.

Wayfair is “doing a lot right, gaining market share, and investing into this growth,” Evercore ISI analyst Oliver Wintermantel said in an interview last month. The company has a differentiated retail model, as it doesn’t own inventory, and a “tailor-made” distribution and logistics network, he said. Wintermantel , who rates the stock outperform, said that there is room for both Wayfair and Amazon in the online home furnishings market. It will be local Mom-and-Pop stores that suffer, as they won’t be able to compete on price.

Takeover Speculation

The company, which recently made billionaires of its founders, has also benefited from estimate-topping results and frequent speculation that it may be a takeover target for companies including Bed Bath & Beyond Inc., Target Corp., Wal-Mart Stores Inc., Home Depot Inc., Lowe’s Cos., Amazon, and Steinhoff International Holdings NV.

Still, with the stock trading 8 percent above the average price target, some Wall Street analysts may be less optimistic than traders. Maxim Group analyst Tom Forte last month called the stock fully valued, despite the potential for significant revenue growth and a takeout. Wayfair has 11 buy and 11 hold ratings, and no sells. Investors will be closely watching second-quarter results on August 8th to see if Wayfair’s gains can continue.

— With assistance by Sebastian Silva

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