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Morgan Stanley downgrades Williams-Sonoma as demand for home furnishings weakens


Expect more downside ahead for Williams-Sonoma ‘s stock as demand for home furnishings weakens in a difficult macro environment, according to Morgan Stanley. Analyst Simeon Gutman downgraded the stock to underweight from equal weight, saying in a note to clients Monday. The analyst also slashed his price target on the stock to $100 from $150. The new target implies downside of roughly 18% from Friday’s close. “Earnings revisions could turn sharply negative in ’23 as the impacts of reversion, recession & normalizing promotions appear underestimated, even at the stock’s current discounted valuation,” Gutman said, noting that he’s modeling earnings per share for the 2024 fiscal year 33% below consensus expectations. Earlier this month, Williams-Sonoma reported third-quarter sales and profit that surpassed analyst expectations. However, the company failed to reiterate or update its outlook for the 2024 fiscal year, citing economic uncertainties ahead. Going forward, Gutman views a slew of macro-related issues for Williams-Sonoma, expecting home furnishings to decline by 6% to 7%, discretionary spending to fall and deflation to return in 2023. Williams-Sonoma shares have fallen more than 27% in 2022. “Though WSM’s higher-income customer provides some insulation, in aggregate we think these headwinds mean the category likely declines and comps should turn more sharply negative in ’23,” he said. “The timing and magnitude of EPS cuts could be greater than expected, and valuation is likely to be pressured until there is more clarity on the earnings/margin trough,” Gutman said. — CNBC’s Michael Bloom contributed reporting

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