It is safe to say that with a year-to-date gain of 76%, Overstock (OSTK) investors are a happy bunch right now. However, the online retailer’s July performance has so far been relatively weak, with the stock down by 8% since the start of the month.
Needham’s Anna Andreeva puts the soft display down to “credit card data noise, Home & Furnishings sales deceleration in June and profit taking ahead of 2Q21.”
Overstock is due to report second quarter earnings next Thursday (July 29) and the analyst believes the buy-side is “bracing for a sales miss for 2Q21 and a soft guide for 3Q21.” However, Andreeva begs to differ and views the risk/return on OSTK stock as particularly appealing right now.
“We view OSTK's drop-ship model as especially attractive in this environment of ongoing supply chain disruptions for the industry (our checks suggest on average 1 week turnaround on sofas & couches, a historically longer lead-time category, at OSTK vs. 2-3 weeks at Wayfair), plus the back-to-school selling season with economy opening up is a big catalyst for the industry,” the analyst said.
The last point is especially pertinent, as last year, due to Covid, there was “virtually” no back-to-school selling. Therefore, Andreeva views this year’s third quarter as a “big opportunity” where back-to-school sales are concerned.
As for Q2, Andreeva expects revenue to come in at $775 million, a 1% year-over-year increase compared to the “flat” consensus estimate at $767 million - incidentally, the same performance Overstock is expecting, having guided for flat Q2 sales. The Street is expecting gross margins to decline by 70 bps, but Andreeva’s forecast calls for a 20 bps uptick.
Additionally, due to the big increases last year, the company anticipates a dip in 2Q21 on the Active customers front. However, given new retention initiatives, Andreeva thinks such an outlook “might be conservative.”
Overall, the analyst sticks to a Buy rating for OSTK stock while the $150 price target stays put too. Investors are looking at gains of ~82% over the coming months, should Andreeva’s thesis play out accordingly. (To watch Andreeva’s track record, click here)
There’s no pushback from the rest of the Street on the Needham analyst’s bullish stance; based on Buys only – 6, in fact – the stock qualifies with a Strong Buy consensus rating. There’s decent upside projected too; the average price target stands at $126, suggesting shares will appreciate ~52% in the year ahead. (See OSTK stock analysis on TipRanks)
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