Wayfair Shares Cut to Equal Weight at Stephens

Wayfair shares were cut to equal weight at Stephens. Analyst Rick Nelson says the online retailer's path to profitability is 'muddled.' And he's not surprised by reports of job cuts.
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Wayfair  (W) - Get Report shares fell after Stephens analyst Rick Nelson downgraded the online furniture and household-goods retailer to equal weight from overweight and cut his share-price target 16%.

“Wayfair commands an impressive 19% market share of the online channel,” he wrote in a report. But “despite this market dominance," the company is expected to report an adjusted loss before interest, taxes, depreciation and amortization of about $500 million for full-year 2019.

The Boston company is scheduled to report fourth-quarter earnings on Friday. A survey of analysts by FactSet is estimating that Wayfair will post a loss of $3.25 a share, or an adjusted $2.64, on revenue of $2.53 billion.

The company’s sales growth slowed “meaningfully” in last year’s second half, Nelson said. “Investors have become increasingly uncomfortable with Wayfair's growing losses, and the path to profitability is muddled,” he wrote.

“Looking at the various components of the income statement, it is difficult to see any chance of near-term profitability.”

The Wall Street Journal reported earlier this month that Wayfair is shedding 500, or about 3%, of its jobs. “With revenue growth slowing and Ebitda losses widening, we are not surprised by reports of job cuts,” Nelson said.

He noted that the stock has dropped almost 60% from its March 2019 high of $174. “Investor sentiment has shifted against Wayfair,” Nelson wrote. “In a shaky market we think investors will gravitate to profitable companies with valuation support.”

He reduced his share-price target to $80 from $95.

On Monday, Morgan Stanley analyst Simeon Gutman downgraded Wayfair to underweight from equal weight and reduced his price target to $65 from $75, the Fly reported.

Wayfair's fundamentals are worsening at a time when investors are less tolerant of unprofitable online retailers, Gutman said in a report.

At last check, Wayfair’s stock traded at $70.81, down 6.3%.