Do Wayfair's Fundamentals Still Have Room To Run?

Following strong results reported by Wayfair Inc W, Canaccord Genuity believes there is still room for fundamentals and the stock to run.

The belief, according to the firm, is based on the following factors:

• The growth appears broad-based and due to a combination of customer engagement, new products such as registry and marketing efficiency.
• Engagement of core U.S. customers is improving, with revenue per customer going higher domestically despite international dilution bringing the metric down overall.
• The valuation of the stock is cheap despite the recent move.

The firm noted that the company reported strong net customer adds in the first quarter, expanding revenue per active customer in the U.S. This helped drive about 32 percent direct retail revenue growth. This coming against a 93 percent comp in Q1 2016 was impressive, the firm said.

The analysts also noted Wayfair guided second-quarter revenue growth to about 36 percent, while indicating that the quarter-to-date growth has exceeded 40 percent.

"The return to accelerating, high growth after lapping a difficult Q1/16 comp has proved to be a significant positive catalyst for the stock," the firm said.

Margin, The Key

Canaccord Genuity noted EBITDA margin remains negative, driven by international investment and a 0.4 percent margin in the U.S. The firm expects similar levels in the U.S. in the second quarter, as logistics investments continue to front-run revenue.

"However, we expect better capacity utilization in H2/17 to bring slightly higher margins," the firm opined.

Despite management's long-term mentality, analysts said it's increasingly comfortable the U.S. margin can expand by 100-200 basis points each year and that the international margin can get to positive territory within 2-3 years.

Raising Estimates & Price Target

Canaccord Genuity raised its revenue and EBITDA estimates for the company and lifted its price target on shares of Wayfair to $68 from $45.

"We have long maintained that W's valuation has a lot of room, and we continue to think so, even though, we would not be surprised to see a short-term pullback after the sharp move higher," the firm added.

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