Should Amazon Buy Wayfair? Loop Capital Makes The Case

Amazon.com, Inc. AMZN has proven that it’s not afraid to pull the trigger on a big acquisition.

Recent stories in the Wall Street Journal and Forbes suggest Amazon’s next major buyout target could be e-commerce company Wayfair Inc W due to Wayfair’s exposure to the home furnishings and furniture markets — two areas Amazon has expressed interest in pursuing.

The Analyst

Loop Capital analyst Laura Champine maintained a Buy rating on Amazon with a $1,545 price target. Loop has a Buy rating on Wayfair with an $87 price target.

The Thesis

A marriage between Wayfair and Amazon makes a lot of sense, Champine said in a Thursday note. (See the analyst's track record here.)

Amazon is clearly interested in home furnishings given recent management commentary and the launch of the private label brands Rivet and Stone & Beam, the analyst said.

Given Wayfair’s size and business type, Amazon it likely its only possible buyer, which means a potential bidding war is unlikely, Champine said.

Wayfair would give Amazon an instant, large and fast-growing presence in the furniture and home furnishings business, the analyst said. Wayfair also has expertise in large cube distribution, which could help Amazon improve its large item sales, she said.

With a market cap of $7.5 billion, Wayfair wouldn’t come cheap for Amazon, but Champine said the deal would be worthwhile for Amazon shareholders in the long term.

“We estimate acquiring Wayfair at a significant premium to current stock price levels would be EPS dilutive to Amazon, but certainly not enough to dissuade management given its long-term focus."

Wayfair buyers shouldn't assume an Amazon buyout, but the possibility of an offer provides upside potential in the near term, according to Loop Capital.