Wayfair's Growth Strong, But Below Wedbush's Expectations

Wedbush maintained its Outperform rating on Wayfair Inc (NYSE: W) despite the company's second quarter results falling short. The results, though, exceeded company guidance on the top line and met the high end of guidance on EBITDA margin.

Guidance for the third quarter revenue growth and EBITDA margins also fell short of expectations.

"Despite these shortfalls that led the stock to give back its recent gains, absolute Direct Retail revenue growth remains impressive relative to home furnishings specialty retail competitors," analyst Seth Basham wrote in a note.

"We believe W is investing appropriately to widen the competitive moat on selection, merchandising, customer service and fulfillment; those investments may weigh on near-term profitability but should translate into strong top line growth and profits in the medium- and long-term," Basham continued.

The analyst's bullish thesis also assumes Wayfair's increasing attractiveness as an acquisition target following Wal-Mart Stores, Inc.'s (NYSE: WMT) acquisition of Jet.com.

However, the analyst cut its third quarter, fourth quarter and full year estimates as ramping investments in fulfillment and logistics would weigh on near-term profitability. Basham also lowered its price target to $55 from $60.

Basham sees long-term 25 percent plus revenue growth, driven by "compelling value proposition, shifting consumer shopping behavior, accelerated marketing and top-notch back-end operations."

In addition, the analyst sees potential for at least $7.5 billion in sales and $375 million in operating profit in four years.

"As the path to massive scale and further profitability become clearer, we expect stock price outperformance to follow," Basham added.

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