Jefferies has upgraded Wayfair Inc. (NYSE: W) to a "Buy" rating, citing strong market share gains, the impact of a new paid loyalty program, and increasing traction in B2B and physical retail segments. The brokerage firm highlights "fresh optimism" for Wayfair’s EBITDA growth, which is expected to surpass Wall Street’s expectations.
Key Points from Jefferies:
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Valuation Discount: Despite Wayfair’s impressive growth, the stock trades at a discount compared to peers. The company’s EBITDA compound annual growth rate (CAGR) is nearly three times higher through 2027.
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Stock Price: Wayfair’s current stock price of $33 reflects levels seen during the COVID period, despite the company’s expansion. It is now 30% larger, with an EBITDA margin nearly 1,000 basis points higher.
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Demand Drivers: Jefferies points to "green shoots" in underlying demand, such as a year-over-year increase in existing home sales for four consecutive months. The West has led recent housing momentum, and Wayfair’s website traffic has notably improved in states like Arizona and Washington, suggesting potential growth in other regions.
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Market Share: Wayfair’s market share gains are underappreciated, with the company outperforming 38 home furnishings peers since 2021.
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Physical Retail Growth: Jefferies now sees brick-and-mortar stores as a stronger growth driver, creating a "halo effect" that boosts e-commerce traffic.
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Paid Loyalty Program: Launched four months ago, the paid loyalty program is expected to increase order frequency. By 2029, members are expected to account for a high single-digit percentage of active customers and a low double-digit percentage of sales.
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B2B Expansion: Jefferies also views B2B expansion as downside protection, forecasting B2B sales to reach 25% of total sales by 2029, up from 17% today.
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Outlook: Despite cyclical demand, Jefferies believes Wayfair deserves a valuation premium due to its outsized EBITDA growth potential. The firm sees roughly 40% upside potential for the stock.
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