Wayfair Trends on the Upswing Despite Recent Angst in the Housing Markets; Shares Undervalued

Embedded in a personnel update was no-moat Wayfair’s recognition that the home furnishing environment isn’t as dour as it was just a few weeks ago. When Wayfair reported its first-quarter results on May 4, second-quarter gross revenue was falling at a high-single-digit rate year over year. However, the cadence of gross revenue has already improved, currently falling at a mid-single-digit rate, benefiting from positive order growth. Initially, the firm had anticipated demand improvement in both May and June given easier comparisons, which would imply nearly 10% sequential growth. But the update implies closer to low-teens sequential growth if patterns continue. We don’t plan to alter our $94 fair value estimate despite the modest improvement in demand, as our long-term prognosis for the business remains unchanged. Looking forward, we forecast mid-single-digit sales growth, modestly faster than industry growth, as e-commerce adoption across the home furnishing sector continues to improve. We view shares as attractive at a nearly 50% discount, despite the nearly 60% run up the stock has experienced year to date, particularly with the possibility of consistently positive EBITDA on the brink.