Goldman upgrades WRBY to buy

Warby Parker’s promising outlook justifies its premium valuation, according to Goldman Sachs. The bank upgraded shares of the eyeglass retailer to buy from neutral and raised its 12-month price target to $18 from $15. Goldman’s forecast implies roughly 9% upside from Friday’s close. Shares popped more than 4% in the premarket after the rating change. Analyst Brooke Roach noted that while the stock’s valuation “remains somewhat elevated,” Warby Parker’s strong fundamentals and margin growth outlook justifies outperformance from here. Warby Parker trades at a forward price-to-earnings multiple of 69, well above the S & P 500’s 24.6 ratio. WRBY YTD mountain WRBY YTD chart “This multiple represents a premium to our sector average multiple, which we believe is appropriate due to WRBY’s stronger top line growth outlook and margin expansion opportunity,” the analyst wrote. Roach sees margin expansion of 2% in 2024 and 1.6% in 2025. “Key to potential acceleration is the scale benefits that WRBY is beginning to realize as it becomes a larger comprehensive eyecare retailer, where we see upside from integration of recent insurance partnerships which begins to contribute in 2H24 but will scale throughout 2025,” Roach said. Warby Parker also has a track record of maximizing its labor operations and first-year store profitability. Tailwinds in the eyewear category, seen through more robust year-over-year growth, could also benefit the company as well. “WRBY is also positioned for margin improvement, as recent marketing investments take root and with ecomm growth more consistently delivering growth in high-margin glasses product,” Roach said. Analysts are generally bullish on Warby Parker, which is up 17% for the year. Of the 15 covering the stock, eight have buy or strong buy ratings, LSEG data shows. The rest rate the shares as a hold.