About half of Wayfair and Overstock’s vendors are based in China.
Gabby Jones/Bloomberg
A reduction of tariffs on goods from China would likely significantly boost the bottom lines for certain online retailers, Needham believes.
Earlier this week, the W
all Street Journal reported President Joe Biden is considering ending some tariffs on Chinese imports implemented by President Donald Trump to combat inflation.
On Thursday, analyst Anna Andreeva reaffirmed her Buy ratings on Wayfair (ticker: W) and Overstock ( OSTK
), noting that much of the furniture they sell comes from China. She has a $100 price target for Wayfair and a $75 target for Overstock. On Thursday, Wayfair shares were up 5% to $54.78, while Overstock rallied by 3% to $27.32.
“We see W and OSTK as the biggest winners in our coverage should the U.S. reduce tariffs on imports from China,” she wrote. The two companies “will see the biggest benefits.”
About half of Wayfair’s and Overstock’s vendors are based in China. If tariffs are reduced, she said, she expects suppliers and retailers to split the financial benefit evenly. Andreeva estimates that as a result, Wayfair’s earnings per share could rise by $1.16 this year, while Overstock’s EPS may increase by 56 cents.
Wayfair and Overstock generated $2.32 and $2.19 in EPS last year, respectively.
“While we aren’t implying that cost reduction would necessarily drive additional demand for furniture, this could represent a much-needed boost to profitability,” she wrote.
It has certainly been a difficult year for Wayfair and Overstock. Wayfair shares have declined by nearly 70%, while Overstock stock has dropped by roughly 50% as investors have responded to disappointing slowdowns in revenue growth.
A tariff reduction would be welcome news for the online retailers’ shareholders.
Write to Tae Kim at [email protected]
