The home furnishing market appears to be improving, and three stocks stand to benefit. One of those, Wayfair stock, surged early Thursday following an upgrade.
Evercore ISI on Wednesday upgraded Wayfair to outperform from in-line, calling the furniture producer a market share gainer in a "cyclically recovering" home furnishing market, The Fly reported. Wayfair's cost cuts have created a floor for its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). That factor limits downside and offers an attractive upside once revenues start growing again, according to the research note. Evercore believes Wayfair's "margin unlock is underappreciated by the market." The firm hiked its price target on Wayfair stock to 80 from 65.
Elsewhere, Loop Capital on Tuesday raised its price target on Wayfair shares to 65 from 55 and maintained a hold rating on the stock. Loop raised its Wayfair sales estimates starting in the September quarter on forecasts for improved promotional activity in home furnishings. The firm expects Wayfair to lap negative high-single-digit comparisons for average online orders in the second half of the year.
Wayfair recorded 11.3 million orders delivered in the fourth quarter, up 2.7% year-over-year. The company reported that 62.8% of total Q4 orders delivered were made on mobile devices, compared to 61.7% for the prior year.
Home Furnishing Improvement
Analysts also expect RH and Williams-Sonoma to see a boost from improvements in the home furnishing market.
Barclays on Monday raised its price target on RH stock to $340 from $293 and kept an equal weight rating on the shares. RH "continues to set up as one of the most interesting of the cyclical names" and should be positioned well for when demand improves, according to a research note reported by The Fly.
However, RH's March 27 Q4 earnings were "much worse" than expected, Loop Capital wrote in a Monday note. But the firm is "encouraged" by upcoming product launches and RH's plan to double its sourcebook and customer contacts. Loop expects RH's top-line and profitability trends to improve distinctly throughout fiscal 2024, the Fly Reported. Loop Capital hoisted its price target on RH stock to 350 from 260 and maintained a hold rating on shares.
Elsewhere, Telsey Advisory believes Williams-Sonoma can achieve a high-teens operating margin following its March 15 investor presentation. The firm is confident the company can reach its 2024 guidance, with room for potential upside. Telsey says Williams-Sonoma is well-positioned for growth beyond 2024, according to the March 25 research note reported by The Fly. Telsey Advisory raised its price target on WSM stock to 340 from 320 and kept an overweight rating on the shares.
Meanwhile, consumer sentiment is backing the recovery in the home furnishings sector. The University of Michigan's Consumer Sentiment Index rose to 79.4 for the month of March, its highest since July 2021, from 76.9 in February. Surveys of current economic conditions and consumer expectations both showed positive improvements as inflation expectations decline.
Wayfair Stock
Wayfair stock jumped 6.5% early Thursday on the upgrade. That positioned W stock to clear a 66.25 buy point for a cup-with-handle base. Wayfair stock rose 1.2% so far this year through Wednesday's close.
RH stock swung 1.6% higher Thursday morning to climb toward its 10-day moving average. RH stock declined the past three days. Shares climbed 2.4% year-to-date.
Williams-Sonoma ticked up Thursday morning. Shares rocketed more than 53% in 2024, including a 17.8% spike on March 13 after earnings.
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