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Bull of the Day: Williams-Sonoma (WSM)

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Williams-Sonoma (WSM - Free Report) is a Zacks Rank #1 (Strong Buy) that is a specialty retailer of premium quality home products. The San Francisco based company runs fives segments, which include popular names like West Elm and Pottery Barn.

The stock has been on a big run since the March panic lows and the company has recently delivered a nice beat on earnings expectations. Investors should stick with the stock as the earnings and price momentum continue.  

Stock Drop and Pop

The March panic was the perfect time to buy WSM as it fell below the $30 level when investors were selling everything. From there, the stock popped rather quickly, rallying all the way back to pre-COVID levels by May. Traders realized that the stay-at-home environment was perfect for the WSM segments. Consumers wanted to spice up their kitchen, living space or home office and Pottery Barn and West Elm were great places to go.

Of course, people wouldn’t literally go, as the store locations were mostly closed. However, the digital platform allowed WSM to thrive in an environment where they should have struggled.

Earnings Beat

The stock rallied into the earnings report at the end of May. A beat was expected, but the 722% upside surprise was not. The blowout quarter impressed investors and the stock went higher by 15% over the next two days.

The company reported $0.74 v the $0.07 expected and saw revenues at $1.24B v the $1.07 expected. While the company suspended guidance, they commented on the e-commerce momentum. Here is CEO Laura Alber on the quarter:

“In this highly disrupted environment, we are proud to deliver 2.6% comp growth in the first quarter, despite having all of our 616 stores closed for more than half of the quarter. Our large e-commerce business had breakout comp growth in the second half of the quarter and continues to accelerate. Our teams maximized demand online, leaning into new and innovative ways to engage and serve our customers virtually. We gained market share with strong new customer growth in our DTC business, giving us even more confidence in the growth trajectory of our e-commerce business longer term.”

Estimates Rising

Analysts loved the quarter and took estimates and price targets higher. Over the last 30 days, estimates for next quarter have gone from $0.76 to $0.97, a move of 27%.  For next year, estimates have been taken up 53% higher over the same time frame.

Analyst commentary cited comparable sales growth and earnings above expectations with stores closed as a catalyst for the stock going higher.

The Technical Take

The dip and rip in the stock gives us a clear picture of what to expect. The 61.8% Fibonacci retracement break, from February highs to lows, was a buy signal with long term targets at $105. With the stock above all moving averages which are trending higher, these targets are well within reach.

Those looking for a pullback could look at the 21-day moving average and hallway back from pre-EPS levels to highs. This would be right around the $75-76 level.

In Summary

The market has rewarded investors that found the stocks that benefited or adjusted well during the pandemic. Now that stores are reopening, the question is how consumers respond going forward. With the digital sales doing very well for William-Sonoma and its segments, the stock will continue to perform in any environment.

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