Why Needham Is Turning Bullish On Stitch Fix

Stitch Fix Inc SFIX is gaining strength by diversifying its model and following an aggressive client acquisition strategy, while benefiting from favorable secular trends, according to Needham.

The Stitch Fix Analyst: Rick Patel upgraded Stitch Fix from Hold to Buy, while establishing a price target of $36.

The Stitch Fix Thesis: The Direct Buy option diversifies the company, positing it better in the broader market for apparel, footwear, and accessories, which represents a total addressable market of $400 billion, Patel said in the  note.

He mentioned four key reasons for the bullish rating:

1. “Direct Buy expanding SFIX’s TAM, increasing loyalty, driving share gains from department stores, and generating higher revenue per client";
2. Improved customer acquisition through aggressive marketing, increased personalization via the Trending For You approach, and progress in the UK;
3. An improving assortment as the company “leverages data and strong vendor relationships to chase trends”; and
4. Shift towards e-commerce becoming a more permanent trend.

SFIX Price Action: Shares of Stitch Fix traded higher by 1.3% to $28.63 at the time of publication Thursday.