Jefferies upgrades Wayfair on market share gains, retail expansion

Investing.com -- Jefferies upgraded Wayfair Inc (NYSE:W) to "Buy" given the strong market share gains, impact of a new paid loyalty program, and growing B2B and physical retail traction. Brokerage sees "fresh optimism" for EBITDA growth exceeding Street expectations.

Wayfair trades at a discount to peers despite an EBITDA compound annual growth rate nearly three times higher through 2027, Jefferies noted.

Stock price of $33 reflects levels is at COVID levels, despite the company now being 30% larger with EBITDA margin nearly 1,000 basis points higher.

Jefferies also pointed to "green shoots" in underlying demand drivers, with existing home sales rising year-over-year for four consecutive months. The West has led recent housing momentum, and Wayfair’s website traffic has improved in states like Arizona and Washington, indicating potential tailwinds in other regions.

Wayfair's market share gains remain underappreciated, with an analysis of 38 home furnishings peers showing the company’s steady outperformance since 2021. Additionally, Jefferies now sees physical retail as a stronger growth driver than previously thought, with brick-and-mortar stores creating a “halo effect” on e-commerce traffic.

Wayfair's paid loyalty program, launched four months ago, is expected to drive higher order frequency, with members projected to account for a high single-digit percentage of active customers and a low double-digit percentage of sales by 2029.

Jefferies also sees sponsored advertising and B2B expansion as downside protection, with B2B sales penetration forecast to reach 25% by 2029 from 17% today.

Despite Wayfair’s cyclical demand, Jefferies believes the stock deserves a valuation premium given its outsized EBITDA growth and sees roughly 40% upside potential.