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Wayfair, Bed Bath Stock Face New Pressure on Bearish Morgan Stanley CallWayfair, Bed Bath Stock Face New Pressure on Bearish Morgan Stanley CallSavitz, Eric J. Barron's (Online); New YorkShares of the online home-furnishings retailer Wayfair thrived during the pandemic, as consumers stuck inside by stay-at-home mandates chose to spruce up their nests. They soared to $226 from $90 in 2020, and this year extended the gains into the mid-$300s before reversing course , closing Wednesday at $235.46. On Thursday, Morgan Stanley retail analyst Simeon Gutman cut his rating on Wayfair (ticker: W) to Underweight from Equal Weight and slashed his target price to $195 from $290, for a potential decline of about 17%. Note that Jefferies had downgraded Wayfair shares on Wednesday. The Wayfair downgrade was part of a broader call that also included a downgrade of Bed Bath & Beyond (BBBY) to Underweight from Equal Weight, with a new target of $12, down from $18. Gutman also raised his rating on the optical chain National Vision Holdings (EYE) to Overweight from Equal Weight, with a new target of $70, up from $57. In Thursday trading, National Vision has spiked 5.7%, to $59.47, while Wayfair is off 0.4%, at $234.47, and Bed Bath is up fractionally, at $14.45. The S&P 500 is up 1.2%. Gutman writes in a research note that many retailers have experienced "unprecedented revenue growth" since the end of 2019, with consensus estimates assuming sharp declines in 2022 and a return to growth in 2023. He notes that as a percentage of personal consumption, services look poised to recoup losses to durable goods during the pandemic. He thinks that strong income gains and the drawdown of stimulus savings will support spending, and that the reversion will be less severe than some fear. That said, the analyst sees potential declines in home-furnishings spending in both 2022 and 2023. Gutman argues that could lead "to declining near-term sales and negative profit implications" for Wayfair, and he thinks Bed Bath & Beyond faces a similar situation, compounded by market share losses. "The crux of our downgrade is we now expect below consensus revenue in each of the next two years," he writes, noting that his model points to home-furnishings spending falling 3.5% next year and 6% in 2023. On Wayfair, he adds that the company faces inventory, supply chain, and "channel mix" challenges as traffic moves back in-store from online. He thinks Wayfair could lose market share in the near- to medium-term. "As sales slow, possibly below expectations in Q3 and Q4, profitability likely follows, driven by higher marketing spend to recapture share," he writes. Gutman adds that his Wayfair call is "largely tactical given a uniquely challenging near-term setup," but that Wayfair is nonetheless "a stronger brand post Covid and still a long-term share gainer." On National Vision, the analyst writes that he sees the optical category "bucking the revision trend over the next two years," driving continuing growth through 2023. |
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