UBS upgrades Williams-Sonoma amid its improved valuation

Investing.com -- UBS upgraded Williams-Sonoma (NYSE:WSM) to Neutral from Sell, saying that the he home furnishings retailer's stock is now more fairly valued after a recent pullback and realistic guidance.

Brokerage believes Williams-Sonoma’s shift to a full-priced operating model has improved its margin outlook, and the risk of losing market share is lower than previously expected.

UBS had been cautious on WSM due to high valuation and concerns over margin pressure.

However, with the stock now trading at 18-19 times forward earnings, down from the low-to-mid 20s range, the bank sees less downside risk.

WSM’s latest guidance also accounts for potential pressure from tariffs and other short-term challenges, which UBS sees as a more realistic foundation for future performance.

Despite the upgrade, UBS noted that challenges remain. WSM may need to invest more in promotions to drive demand, which could limit profit growth.

Broader tariff risks could also weaken consumer demand for home furnishings and put pressure on margins.

Additionally, while WSM could benefit from a pickup in home sales or lower interest rates, UBS does not expect these factors to significantly boost earnings in 2025.

The bank raised its price target to $165 from $140, reflecting a valuation of 17.5 times its 2026 EPS estimate of $9.45.

UBS attributed the higher target to WSM’s stronger margin outlook, improved sales trajectory, and more realistic investor expectations.

Williams-Sonoma earlier this week posted stronger-than-expected fourth-quarter earnings, driven by improved retail and online furniture sales and standout seasonal offerings.