Why Wayfair Is Attractive At Current Levels

Online home furnishing retailer Wayfair Inc W is one of the beneficiaries of the COVID-19 pandemic that forced consumers to increasingly gravitate toward online shopping.

With the stock pulling back promptly on Monday in reaction to positive news concerning a vaccine against the virus that causes the pandemic, an analyst at DA Davidson said he sees a buying opportunity.

The Wayfair Analyst: Tom Forte upgraded Wayfair from Neutral to Buy and reiterated the price target at $280.

The Wayfair Thesis: Following Monday's 22% decline, Forte said Wayfair shares have become attractive. The positive opinion is based on the company's proven ability to generate profitable sales growth and the notion that it will exit the pandemic with gross margins that are sustainably higher than they were pre-pandemic.

The three biggest positive impact of COVID-19 on Wayfair, the analyst said, were the company's ability to run operations even amid the lockdown restrictions, consumers using stimulus money and unemployment benefits on home-related merchandise, and additional discretionary income available to consumers on account of travel ban etc.

Related Link: 3 E-Commerce Stocks Trying To Retain Pandemic Customers

Sustainable benefits that accrued to Wayfair from COVID-19 were cost discipline, new customer growth at the expense of the overall industry as well as of Amazon.com, Inc. AMZN, which focused on essentials during the pandemic, Forte said.

Customers who were forced to look elsewhere for home-related products in a timely manner had favorable experiences with Wayfair, as reflected in repeat customer purchase behavior, the analyst noted.

DA Davidson is bracing for at least one more round of stimulus due to the combination of a Democrat President-elect, Democrat-controlled House, a Senate that's still up-for-grabs and, COVID-19 cases spiking.

Wayfair Price Action: Wayfair shares were rising 1.5% to $238.95 at publication time.