Stifel Downgrades Wayfair After Q1 Print, Says Coronavirus Sales Surge Will Dissipate

Online furniture company Wayfair Inc W disclosed 90% revenue in the second quarter, but investors shouldn't expect this "unprecedented" surge in sales to last forever, according to Stifel.

The Wayfair Analyst

Scott Devitt downgraded Wayfair from Hold to Sell with a price target lifted from $115 to $135.

The Wayfair Thesis

Wayfair disclosed in its first-quarter report Tuesday that sales growth more than doubled from just below 20% in January and February by the end of March, Devitt said in a Tuesday downgrade note. (See his track record here.)

The e-commerce company reported an adjusted first-quarter loss of $2.30 per share, beating a Street estimate of a $2.60-per-share loss, and inline sales of $2.3 billion. 

At first, the growth was mostly confined to stay-at-home categories like office, cooking and kitchen and children's furniture, the analyst said, but the momentum expanded across all categories and geographic regions.

Wayfair's growth is a direct result of the COVID-19 pandemic, which forced rival physical furniture stores to close their doors while Amazon.com, Inc. AMZN prioritized essential items, he said.

Furniture stores "won't be closed forever" and will re-open in the short-to-intermediate-term, Devitt said. Rivals that can't continue operating their businesses will look to liquidate their inventories and limit Wayfair's pricing power, the analyst said. 

Wayfair's growth at current levels is unsustainable and investors should expect a "steady deceleration" from today's levels, he said.

While sales over the long-term will prove to be higher than average, theywill be "nowhere near" present trends on a two-year stacked basis as early as next year, Devitt said.

"We believe Wayfair shares have moved too far too fast in response to the recent impressive acceleration and downgrade the shares to Sell."

W Price Action

Shares of Wayfair hit a new 52-week high of $181.39 on Tuesday and ended the day higher by 23.7% at $165.88.

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Courtesy photo.