Shares of Overstock.com (OSTK) are on the rise on Monday after Piper Sandler analyst Peter Keith initiated coverage of the name with an Overweight rating and a $140 price target. The analyst said that while the shares are up over 1,200% in 2020, "there are seismic forces at work that have dramatically improved" the company's sales and profitability outlook.
OVERSTOCK.COM 'UNDERVALUED': Piper Sandler analyst Peter Keith initiated coverage of Overstock.com with an Overweight rating and $140 price target. The analyst believes that while the shares are up over 1,200% in 2020, "there are seismic forces at work that have dramatically improved" the company's sales and profitability outlook. These forces include a "well-timed" refocus of the business on its e-commerce home furnishings business and a "structural shift" in home furnishing sales as a result of COVID, the analyst contended. Keith expects the industry backdrop to remain "extremely supportive" and finds Overstock.com "undervalued" relative to other high-growth consumer tech companies.
The $300B U.S. Home Furnishings market is seeing "solid growth" in 2020 as COVID is leading consumers to spend more on home-related items, the analyst argued. Additionally, he pointed out that e-commerce portion of industry sales where Overstock.com is focused has seen "dramatic expansion" from 23% to 32% of industry sales in the second quarter of 2020. Keith expects the company to benefit from an "exceptionally strong industry backdrop for the next 5 years" as a result of both the e-commerce share shift, and a favorable housing backdrop.
Furthermore, the analyst highlighted that Overstock.com has only recently begun focusing on its e-commerce platform under new leadership and has a number of early-stage business initiative he would characterize as "low-hanging fruit." These initiatives include improving the Mobile Experience, focusing on its core value-conscious customer, and implementing more targeted pricing and promotions.
Keith also added that the company has two blockchain business segments that are worth mentioning, but both are very small and early stage, namely its t-Zero, an Alternative Trading System for security token, and Medici Ventures, a portfolio of minority interest-owned blockchain companies. These segments combined represent 2.5% of company revenue, and they both lose money, he contended. The analyst views them as a minor call option on blockchain technology but not a distraction to the larger retail/e-commerce opportunity.
PRICE ACTION: In afternoon trading, shares of Overstock.com have jumped nearly 24% to $115.61.
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