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Wayfair Inc. (NYSE:W) came out with its yearly results last week, and we wanted to see how the business is performing and what industry forecasters think of the company following this report. Revenues were US$14b, approximately in line with expectations, although statutory earnings per share (EPS) performed substantially better. EPS of US$1.86 were also better than expected, beating analyst predictions by 15%. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the 27 analysts covering Wayfair are now predicting revenues of US$16.0b in 2021. If met, this would reflect a meaningful 13% improvement in sales compared to the last 12 months. The company is forecast to report a statutory loss of US$1.34 in 2021, a sharp decline from a profit over the last year. Before this earnings announcement, the analysts had been modelling revenues of US$16.1b and losses of US$1.30 per share in 2021. Overall it looks as though the analysts were a bit mixed on the latest consensus updates. Although sales forecasts held steady, the consensus also made a modest increase to its losses per share forecasts.
As a result, there was no major change to the consensus price target of US$305, with the analysts implicitly confirming that the business looks to be performing in line with expectations, despite higher forecast losses. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Wayfair, with the most bullish analyst valuing it at US$450 and the most bearish at US$95.00 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that Wayfair's revenue growth is expected to slow, with forecast 13% increase next year well below the historical 33%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 18% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Wayfair.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Wayfair. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Wayfair's revenues are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Wayfair going out to 2025, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 5 warning signs for Wayfair (of which 2 shouldn't be ignored!) you should know about.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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