2023-10-12 13:53:46 ET
Eyecare company Warby Parker ( NYSE: WRBY ) was upgraded from neutral to buy by BTIG saying that the company is an industry disruptor with a long runway ahead, given the size of the US eyewear market.
The research team, led by Janine Stichter, sees ~20% potential upside in the stock.
BTIG noted that Warby Parker ( WRBY ) has the opportunity to capture share both from industry leaders and the more fragmented market of independents, adding the company has proven their business concept works.
The company is especially attractive to younger customers who may have more comfort with buying eyeglasses online. That should support future growth.
BTIG conducted a consumer survey to gauge long-term prospects for Warby Parker ( WRBY ). They found that consumers were generally much less aware of their eye exam and contact offerings than their eyeglasses (57% aware the company sells contacts and 40% aware of eye exams vs. 80%+ for eyeglasses).
Eye exams generated less than 5% of revenue in 2022 (vs. 20% for the industry) and represent a significant opportunity. Contact lenses are running at just 8% of sales, vs. 23% for the industry, and are important in generating a sticky, predictable revenue stream.
The company has a variety of initiatives in place to bring awareness to its full offerings. These include a recent uptick in marketing spend, including a brand campaign in Q3. Operationally, a growing physical retail footprint (40 units annually, ~20% growth) should help remove a barrier to conversion, and an expansion of in-store optometrist and telehealth services should also add to growth.
Warby Parker ( WRBY ) is also growing its relationships with insurance networks which will make it easier for consumers to get reimbursement.
Digging into the financials, BTIG expects 2023 revenue growth of 11.7%, slightly ahead of guidance of 9.5%-11%, with revenue growth accelerating to 13% in 2024. The analysts also believe adjusted EBITDA margins could expand ~340 bps in 2023, due largely to leverage off cost expense and marketing efficiency in H1 2024, followed by an additional 150 bps of expansion next year.
There are some risks according to BTIG. Sales growth might not live up to expectations if competition intensifies. Gross margins could suffer if expansion costs fail to increase sales. And there is the risk that consumer spending declines.
Additional upside is possible if the company trades at a premium to its peers.
More on Warby Parker
- Warby Parker: Growth Should Accelerate As Trends Seem To Have Turned Positive
- Warby Parker: Growth Is Thy Name
- Warby Parker rallies 4% after Evercore says 2024 will be an inflection year
- Warby Parker gains after raising full-year revenue outlook
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Warby Parker upgraded to buy at BTIG on growth opportunities