On Friday, Citi updated its stance on Wayfair (NYSE:W) shares, reducing the price target to $73 from the previous $80, but still maintaining a Buy rating on the stock. The online furniture retailer's fourth-quarter revenue and EBITDA aligned with expectations, while free cash flow surpassed projections.
Wayfair pledges to achieve at least 50% EBITDA growth in 2024. The company outlined a financial framework aiming for $600 million in EBITDA on $2 billion of revenue, equating to a 5% margin. Moreover, Wayfair suggested that for every additional $1 billion in revenue growth, it could expect mid-to-high-teens incremental margins.
The analyst noted that while macroeconomic factors are beyond Wayfair's control, the company's improved free cash flow positions it to manage upcoming debt maturities through cash flow, leading to a better cost of capital. The commitment to addressing financial obligations and the confidence expressed in their strategy were seen as positive indicators for the company's future.
Wayfair's continued market share gains were highlighted as evidence of the company's solid fundamentals, unaffected by the broader economic environment. The firm's focus on logistics, brand resonance, product curation, and a strategic expansion into physical retail is believed to keep Wayfair competitive in a fragmented market.
The reduction in the price target to $73 reflects lowered estimates due to ongoing macroeconomic challenges and limited visibility. However, this is counterbalanced by an improving profitability profile for Wayfair.
The new price target is based on a 2024 estimated 3.1x enterprise value to gross profit (EV/GP) and 22.5x enterprise value to EBITDA (EV/EBITDA) ratios.
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