What happened
Shares of home-furnishings e-commerce company Wayfair (W 5.52%) are skyrocketing in early trading Monday morning following multiple upgrades from Wall Street. These upgrades come after the company updated its plan to cut expenses on Friday. As of 10:20 a.m. ET, Wayfair stock was up 25% and is up about 50% from Thursday's low.
So what
Analysts typically work off of a three-tiered system that rates stocks to outperform the market, perform inline with the market, and to underperform the market -- these are very close to buy, hold, and sell recommendations.
Usually, when an analyst makes a change to their rating, they only change it by one rung at a time. But today, two very influential analysts are improving their ratings for Wayfair stock by two rungs -- which certainly explains why Wayfair stock is jumping so much today.
Today, Bank of America analyst Curtis Nagle took his rating for Wayfair stock straight from "sell" to "buy", according to The Fly. This move was mirrored by JPMorgan analyst Christopher Horvers who went straight from "underweight" (underperform) to "overweight (outperform). These two analyst now have price targets for Wayfair stock of $65 per share and $63 per share respectively.
Late last year, Wayfair announced it was cutting hundreds of millions of dollars worth of expenses from its business in an effort to achieve profitability. On Friday, the company said it was laying off 10% of its workforce, most of which were corporate employees. These drastic moves give Wayfair management confidence that it can now achieve positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023 sooner than it previously forecasted. This faster turnaround is why Wall Street quickly did an about-face regarding its outlook for Wayfair stock.
Now what
The benefits of the steps that Wayfair is taking aren't likely to show up in the company's financial results for a little while yet. Not including stock-based compensation, management's plan to cut labor by 10% could be a $78-million drag on financial results for the first quarter of 2023, which aren't expected to be reported for about another four months.
