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Wayfair (W) Prices $825M Senior Notes in Private Offering

Zacks Equity Research

Wayfair Inc. W recently announced the pricing of $825 million convertible senior notes due 2026 in a private placement, reflecting an increase of 75 million from the previously announced offering.

The interest rate has been fixed at 1.00% per year, payable semi-annually in arrears on Feb 15 and Aug 15 of each year, and will mature on Aug 15, 2026.

The notes will be offered to qualified institutional buyers only and in accordance with Rule 144A under the Securities Act of 1933, as amended. The company gave the initial purchasers an option to buy up to an additional $113.75 million aggregate principal amount of notes to cover any over allotment. This option will be exercisable for 13 days.

In connection with the pricing of the notes, Wayfair has entered into other privately negotiated capped call transactions with initial purchasers or their affiliates and another financial institution.

The company expects the net proceeds from this offering to be approximately $813.2 million. It also expects to use approximately $126.7 million of the new proceeds to pay the cost of the capped call transactions. The remaining net proceeds will be used for working capital and general corporate purposes.


Wayfair Inc. Price and Consensus


Wayfair Inc. Price and Consensus

Wayfair Inc. price-consensus-chart | Wayfair Inc. Quote

Wayfair’s Cash Position

At the end of the recently concluded quarter, the company had cash equivalents and marketable securities balance of almost $714.5 million, down from $805.7 million in the comparable year-ago period. Cash from operations was ($2.7) million and capital expenditure totaled $54.7 million. Also, free cash flow was ($91.5) million compared with ($166.8) million in the first quarter.

We believe that the company has a strong balance sheet, which will help it in capitalizing on investment opportunities and pursuing strategic acquisitions, further improving prospects. Markedly, the senior notes offering will bring down the company’s cost of capital, thereby strengthening the balance sheet and supporting growth.

Bottom Line

Wayfair is well positioned in the home furnishing retail market. We remain positive about the company’s market position, product selection and expanding customer base.

Also, its high revenues and strong metrics growth are major positives. In the recently concluded quarter, total revenues came in at $2.34 billion, up 41.6% year over year. The figure also outpaced the Zacks Consensus Estimate of $2.26 billion. The increase was driven by strengthening of the company’s direct retail business across international regions.

In addition, Wayfair is being driven by logistic and international expansion. The company has been making efforts to strengthen its global logistics network through the addition of Castlegate warehouses and last mile delivery facilities.

Zacks Rank and Stocks to Consider

Currently, Wayfair has a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector include Alphabet Inc. GOOGL, Itron, Inc. ITRI and Teradyne, Inc. TER, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Alphabet, Itron and Teradyne is currently projected at 17.5%, 25% and 11.4%, respectively.

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