BofA Gives 4 Reasons For Upgrading Williams-Sonoma

Williams-Sonoma, Inc. WSM reported strong results for the first-quarter results and its earnings growth could continue for longer than was previously anticipated, according to BofA Securities.

The Williams-Sonoma Analyst: Curtis Nagle upgraded Williams-Sonoma from Underperform to Neutral, while raising the target from $100 to $180.

The Williams-Sonoma Thesis: The company’s key competitive advantages such as its “scale, superior supply chain and ability to cross sell across four large and well-known brands” could drive market share, Nagle said in the note.

The analyst mentioned four reasons for the upgrade:

• Industry demand could be “stronger for longer” – Various data points indicate continued strong demand for home furnishings.
• The company’s growth initiatives seem to be working – “We see the most value in the Key loyalty program which allows WSM to cross market its brands to new and existing customers,” he added.
• Scale as a competitive advantage – “WSM is one of the largest home furnishing retailers in a fragmented market, has honed a direct-to-consumer based supply chain over many years and is investing more capital in digital and distribution assets. This alone could drive share against competitors,” Nagle wrote.
• Flexibility due to its robust balance sheet – “With zero long term debt, over $600mn in cash and a significant increase in free cash flow, WSM has ample room for higher capex and capital return (buybacks and dividends) as well as potential acquisitions to bolster digital and supply chain capabilities,” he further said.

WSM Price Action: Shares of Williams-Sonoma had risen by 0.2% to $169.89 at the time of publication Tuesday.