Wayfair Analyst Urges Investors To 'Buy The Dip' As Macroeconomic Factors Affect Stock Performance

Amid the turbulence in the consumer and retail sector, Wayfair Inc. W has been making headlines for its recent dip in stock performance.

However, JPMorgan analyst Christopher Horvers is urging investors not to panic but instead “Buy the Dip,” as he emphasizes that the issues facing Wayfair are macroeconomic rather than company-specific.

Horvers maintains an Overweight rating on the stock, albeit with a revised price target of $63 by December 2024, down from the previous $80.

Here’s why he believes Wayfair’s long-term potential remains robust despite current headwinds.

Wayfair’s Struggles: A Macro Issue, Not a Company Crisis

Horvers pointed out that Wayfair’s disappointing second-quarter results were primarily due to broader macroeconomic conditions, not internal failures.

He explains, “It's macro, not Wayfair; sales recovery deferred on rising headwinds; estimates coming down sharply but company-specific story remains intact.” The weak US housing market and an increasingly promotion-driven consumer environment have put pressure on Wayfair’s sales, causing a 1.7% decline in 2Q revenue compared to the Street's expectation of a 0.2% increase.

Despite these challenges, Horvers remains optimistic about Wayfair’s ability to navigate through this tough period. He cites the company’s continued market share gains, highlighting that Wayfair reported its seventh consecutive quarter of market share growth. This resilience underscores his belief that Wayfair’s struggles are tied to the broader economic landscape rather than any inherent weaknesses within the company.

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Why ‘Buy the Dip’ Now?

Horvers sees the current dip as an opportunity for investors to capitalize on Wayfair’s potential upside once macroeconomic conditions improve. “We would defend the shares as the long-term structural positives remain,” he asserts, noting that the retail sector often performs well during a Fed cutting cycle. As the Federal Reserve is expected to cut rates, He believes that the macroeconomic environment will eventually become more favorable for Wayfair.

While the company’s EBITDA margin of 5.2% fell short of expectations, Horvers emphasizes Wayfair’s proactive steps to position itself for future growth. The company’s efforts in cost control and price investments aim to “optimize gross profit dollars,” ensuring that it continues to grow its market share. He also points to the successful opening of a new Wayfair store in Chicago, which has shown a “strong early consumer response,” as a testament to Wayfair’s potential to thrive both online and offline.

Election, Economic Events: Short-Term Pain, Long-Term Gain

Horvers acknowledges that recent events such as the election, the assassination attempt, and the Olympics may have temporarily exaggerated consumer softness. However, he is confident that these factors will not deter Wayfair’s long-term growth trajectory. He argues that the current cut in revenue forecasts may lead to upward revisions as the market adjusts and stabilizes.

His Overweight rating reflects his belief in Wayfair’s long-term value, despite the current dip in its stock price. He maintains that the company’s strengths in market share growth, cost control, and strategic initiatives position it well for future success.

Horvers concludes, “Assuming consensus comes down appropriately, the cut could quickly lead to upward revisions,” reiterating his call for investors to “Buy the Dip.”

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