Raymond James says sell Bed Bath & Beyond after guidance
Shares of Bed Bath & Beyond (BBBY) are sliding after the company announced better than expected fourth quarter results but issued a weaker 2018 forecast.
Following the news, several Wall Street analysts cut their price targets on the stock, while Raymond James analyst Beryl Bugatch downgraded Bed Bath & Beyond to Underperform, a sell-equivalent rating.
Last night, Bed Bath & Beyond reported fourth quarter earnings per share of $1.48 and revenue of approximately $3.7B, both above consensus of $1.39 and $3.68B, respectively.
However, the company also said that it sees FY18 EPS in a low-to-mid $2 range, with consensus at $2.76.
Additionally, Bed Bath & Beyond outlined its “roadmap for continuing the evolution of its foundational structure” with the goals of: growing its comparable sales, which it expects to begin in fiscal 2018; moderating the declines in its operating profit and net earnings per diluted share, in fiscal 2018 and fiscal 2019; and growing its net earnings per diluted share by fiscal 2020.
SELL, SAYS RAYMOND JAMES
In a post-earnings note, Raymond James’ Bugatch downgraded Bed Bath & Beyond to Underperform from Market Perform.
The analyst noted that the company’s management announced multiple initiatives ranging from new store concepts to new organizational structures, to new investments in technology that will come at a cost, as underscored by management’s view for continuing operating profit declines in FY18 and FY19.
Despite the array of initiatives announced, a key issue for the analyst is that the fleet of over 1,000 legacy Bed Bath & Beyond stores continue to deliver in-store mid-single-digit comparable sales declines.
Bugatch argued that it is “Beyond” him that management did not cite a remodeling of its flagship store base that he finds “increasingly unattractive” due to being dated, cluttered and crowded.
Without some underlying growth in management generated earnings over the next two years, shareholder value is likely to erode further, he added. Nonetheless, Bugatch pointed out that at its current valuation, Bed Bath may attract activist interest.
Meanwhile, Morgan Stanley analyst Simeon Gutman lowered his price target for Bed Bath & Beyond to $16 from $20 as he is not convinced its revenue will respond to the company’s initiatives.
The analyst told investors that beyond a lift from the Babies R’ Us bankruptcy, it is hard for him to see how the company can drive positive same-store sales without the aid of promotions.
Gutman reiterated an Underweight rating on the shares.
His peer at JPMorgan also lowered his price target for Bed Bath & Beyond to $16 from $18.
Analyst Christopher Horvers noted that the company’s negative comparable sales in Q4 and over the past two quarters are “particularly disappointing” as is the acceleration in gross margin declines. The analyst also kept an Underweight rating on the shares.
Additionally, Wedbush analyst Seth Basham, Credit Suisse’s Seth Sigman, and Loop Capital’s Anthony Chukumba all lowered their price targets on the name to $18, $20 and $18, respectively, while reiterating neutral-equivalent ratings.
In Thursday’s trading, shares of Bed Bath & Beyond dropped over 19% to $17.39.
To read timely stories similar to this, along with money making trade ideas, sign up for a membership to Stockwinners.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.