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The Ratings Game: Morgan Stanley grows bearish on home furnishing retailers during COVID-19 recovery, downgrades Bed Bath & Beyond & Wayfair

Morgan Stanley downgraded both Bed Bath & Beyond Inc. and Wayfair Inc. to underweight from equal-weight, following an examination of personal consumption expenditures [PCE] and how consumer spending will shift as the COVID-19 recovery continues.

“As life returns to normal, stimulus payments stop, and services spending resumes, durable goods’ share of PCE should recede,” analysts wrote in their report.

Analysts cut Bed Bath & Beyond’s
BBBY,
-1.84%

price target to $12 from $18.

See: Shop early and expect to pay more: Supply-chain issues could be a stumbling block to upbeat holiday shopping forecasts

“The crux of our downgrade is we now expect below consensus revenue in each of the next two years,” analysts said, though the home retailer is in the midst of a turnaround that Morgan Stanley says could drive share gains.

Bed Bath & Beyond stock tumbled after its most recent earnings revealed some risk for the holiday shopping season. Shares have fallen 19.2% for the year to date.

Wayfair’s
W,
+1.55%

price target was cut to $195 from $290. Analysts say supply chain challenges, declines in home spending and higher marketing spend are among the reasons for the downgrade.

“By Q2’22, compares become easier as Wayfair begins to lap sales declines and supply chain issues may abate, or at least normalize,” the note said.

Also: Walmart, Target, Home Depot and other large retailers are chartering ships to bypass supply chain problems. Will the strategy save Christmas?

“Structurally, we think Wayfair is a stronger brand post COVID and still a long-term share gainer as online penetration in the home furnishings category increases.”

Wayfair shares rose 1.8% in Thursday trading, and have increased 6% for 2021 so far.

On the other hand, Morgan Stanley upgraded National Vision Holdings Inc.
EYE,
+6.66%

to overweight from equal-weight and raised its price target to $70 from $57.

“Our upgrade is based on the optical category bucking the reversion trend over the next two years, allowing the segment and [National Vision] to continue growing through ’23,” analysts said.

“In addition to a healthy growth outlook that should stand out relative to most retailers, we think National Vision is one of the best-positioned growth stories in our coverage.”

National Vision stock has rallied nearly 32% for the year to date. The benchmark S&P 500 index
SPX,
+1.58%

is up 17.8% for the period.

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