Williams-Sonoma’s Target Price Raised to $95 at Morgan Stanley After Earnings Beat, Forecasts $165 in Best Case

Morgan Stanley raised their stock price forecast on Williams-Sonoma to $95 from $75, assigning an “Underweight” rating and said the consumer retail company will likely deliver record earnings in 2020 but favourable trends will likely decelerate next year.

On Thursday, the speciality retailer reported its net revenue jumped 22.4% to $1.765 billion in the third quarter ended November 1, an increase largely driven by acceleration across all brands. That was higher than the Wall Street estimate of $1.555 billion. Non-GAAP adjusted earnings rose to $2.56 per share surpassed the market expectations of $1.56. That was an increase of 150% from $1.02 posted a year ago.

Williams-Sonoma said its e-commerce net comparable brand revenue growth accelerated to 49.3% with e-commerce penetration holding at almost 70% of total net revenues.

“We think Williams-Sonoma (WSM) can keep strong momentum through the holiday season (and into early 2021) and based on our model a Q4 comp of 20% will land Q4’2020 EPS at $3.70. However, based on normalized EPS of $6.60 in 2022, the stock is currently trading at 15.3x (above the stock’s 5yr/3yr/1yr averages of 14.1x/13.0x/13.1x), and COVID-19-driven home furnishings trends should decelerate through 2021. As such, the stock should lag going forward as we are not capitalizing current trends,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We are rolling forward our valuation to 2022, and our $95 price target is based on 14.5x 2022e EPS of $6.60 vs 15x 2021e EPS of $5 previously. Our 2022e EPS is 12% higher than our prior estimate, driven by much stronger 2020 results than we expected and lower 2021 forecasts to account for the difficult lap. We expect 2022 to be a relatively normalized year with a 4.7% comp and flat margins, yielding $6.60 in EPS vs $5.90 previously. Our 14.5x target multiple is based on a discount to our prior 15x multiple as we roll forward to 2022 estimates,” Gutman added.

Berkeley Lights’ shares closed 6.60% higher at $107.71 on Friday; the stock is up over 45% so far this year.

Morgan Stanley gave a target price of $165 under a bull scenario and $65 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Williams-Sonoma had its price objective hoisted by Barclays to $144 from $112. They currently have an overweight rating on the speciality retailer’s stock. JP Morgan lifted their price objective to $95 from $80 and gave the stock an underweight rating. Telsey Advisory Group lifted their price objective to $120 from $110 and gave the stock an outperform rating.

Fourteen analysts forecast the average price in 12 months at $110.15 with a high forecast of $144.00 and a low forecast of $80.00. The average price target represents a 2.27% increase from the last price of $107.71. From those 14 analysts, five rated “Buy”, seven rated “Hold” and two rated “Sell”, according to Tipranks.

“Williams-Sonoma’s core playbook is working, and the business is also benefiting from increased spending on the home during COVID-19 disruption. However, performance will be difficult to maintain as tailwinds moderate and costs come back,” Morgan Stanley’s Gutman added.

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