Benzinga | Sep 4, 2020 12:23PM EDT

BofA Says Overstock On 'Positive Trajectory,' But COVID-19 Muddies The Picture

Overstock.com Inc (NASDAQ:OSTK) shares have surged in 2020 thanks to a company recovery and growth in the online home furnishing market.

The Overstock Analyst: BofA Securities analyst Ryan Gee initiated coverage of Overstock with a Neutral rating and $78 price target.

The Overstock Takeaways: BofA is positive on the management team that took the helm at Overstock in the third quarter of 2019, Gee said in a Friday initiation note.

"Overstock is prioritizing sustainable, profitable growth rather than the potentially costly pursuit of category reach and leadership which we feel puts the company on a more promising trajectory than any point in recent memory," the analyst said.

After a strong quarter of retail growth and the overall online home furnishing market surging, Gee said he's taking a wait-and-see approach.

"Getting incrementally constructive may require a few quarters without COVID clouding our ability to gauge Overstock's long term potential."

Overstock's new management, focus on the home furnishing category and secular tailwinds are creating a foundation for a near-term profit inflection, and it dovetails with a return to top-line growth, the analyst said.

Comparing Overstock To Wayfair: "Any discussion of valuation must include Wayfair, which has more customers/scale and has already shown higher margins," Gee said.

Overstock lacks a competitive moat vs. rival Wayfair (NYSE:W), the analyst said.

Overstock and Wayfair compete in the $150-billion home furnishings market; the second quarter saw online home furnishing sales increase 90% year-over-year, he said.

That growth was seen in Overstock's second quarter, when retail sales were up more than 100%.

Some of the growth might have been from one-off purchases due to the surge in work-from-home demand and the closure of big box retailers, Gee said.

Overstock shares have gained 940% in 2020. Wayfair shares are up 205% this year.

Overstock has a market capitalization of $3.1 billion compared to a $26-billion market capitalization for Wayfair.

OSTK, W Price Action: Overstock shares were trading down 7.1% at $68.13 at last check Friday, while Wayfair shares were down 5.74% at $259.83.