UBS raises Williams-Sonoma stock rating to neutral, lifts target to $165

On Thursday, UBS analyst Michael Lasser adjusted his stance on Williams-Sonoma (NYSE:WSM), upgrading the stock rating from Sell to Neutral and increasing the price target to $165 from the prior $140. The revision reflects a recognition of the company’s successful transition to a full-priced operating model, which has shown to enhance the durability of its margin profile, with an impressive gross margin of 46.45%. This transition has helped maintain strong profitability metrics, including a notable return on equity of 53%. InvestingPro analysis reveals 11 additional key insights about Williams-Sonoma’s performance and potential, available exclusively to subscribers.

Williams-Sonoma has proven resilient, experiencing less market share pressure than UBS analysts initially anticipated. The company’s strong financial position is evident in its healthy current ratio of 1.44 and moderate debt levels, with total debt representing just 6% of total capital. Lasser’s commentary highlighted that the company’s recent guidance is seen as realistic, considering factors such as margin pressure from tariffs and other temporary components, which should help to rebase expectations. According to InvestingPro data, the company has maintained dividend payments for 20 consecutive years, demonstrating consistent financial stability.

The company’s stock has seen a modest pullback following the announcement of its guidance, leading to a valuation that Lasser considers more reasonable. The stock is currently trading at an 18-19 times multiple based on Williams-Sonoma’s new outlook, as opposed to the low-to-mid 20x range it was trading at in recent months.

Lasser’s updated outlook suggests that some of the excess previously priced into Williams-Sonoma shares has been removed, bringing the stock to a level that aligns more closely with the company’s financial outlook. According to Lasser, the risk-reward profile of Williams-Sonoma stock is now more balanced, which has warranted the upgraded rating and increased price target.

In other recent news, Williams-Sonoma reported better-than-expected fourth-quarter earnings and revenue. The company posted adjusted earnings per share of $3.28, surpassing analyst estimates of $2.91, and revenue of $2.46 billion, exceeding the consensus forecast of $2.35 billion. Despite these positive results, the company’s outlook for fiscal 2025 did not meet investor expectations, projecting annual net revenues between -1.5% to +1.5% and comparable sales growth ranging from flat to 3%. The operating margin is anticipated to be between 17.4% to 17.8%. In a strategic move, Williams-Sonoma has decided to include tariff costs in its financial guidance for 2025, setting a conservative baseline for earnings per share estimates. Jefferies analysts responded by lowering their price target for Williams-Sonoma from $226 to $208 while maintaining a Buy rating, citing the company’s transparent approach to managing tariff impacts. Additionally, Williams-Sonoma announced a 16% increase in its quarterly dividend to $0.66 per share. These developments reflect the company’s efforts to maintain a stable financial outlook amidst a challenging global trade environment.

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