Overstock.com Gets Buy Rating as Needham Initiates Coverage

Overstock climbs as Needham analyst says the company is 'a compelling growth story with solid momentum.'
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Overstock.com has benefited from a more focused strategy and a "secular shift" toward e-commerce, according to a Needham analyst, who initiated coverage on shares of the online retailer with a buy rating and a $96 price target.

Shares of the Midvale, Utah company were rising 11.1% to $72.40.

Analyst Rick Patel said in a note to clients that Overstock has been a "significant outperformer" year to date and he sees the company "as a compelling growth story with solid momentum."

"The ongoing secular share shift towards digital commerce has accelerated this year, and the home category is benefiting from consumer nesting," Patel said in a note to clients. "We anticipate this will continue."

Concurrently, Patel added, "Overstock has benefited from a more focused strategy and self-help initiatives across mobile, pricing, marketing and customer service."

Patel said he also expected Overstock to benefit from shrinking competition from traditional brick and mortar retailers. Falling foot traffic has been an ongoing headwind for many years and Covid-19 has exerted significantly more pressure.

"It's unclear if or how strongly traffic to brick & mortar stores will rebound, and this presents a market share opportunity for Overstock," the analyst said.

Online sales have increased during the coronavirus pandemic, with the U.S. Census Bureau reporting that July online and other nonstore sales were up 0.7% month over month seasonally adjusted and up 25.8% unadjusted year over year.

Prior to 2020, Patel said, Overstock's revenue was declining, which he attributed to "a lack of focus and less than stellar execution."

"With a 205% y/y increase in new customers and 16% y/y increase in its new customer repeat rate in 2Q," he said, "we believe the wind is at Overstock's back and that new customers will remain loyal to the site."

Last week, Overstock's digital currency trading platform, tZero, was cleared to offer retail brokerage services for digital securities.