A Rare Downgrade For Bed Bath & Beyond (BBBY, BBY, AMZN)

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Bed Bath & Beyond Inc. (NASDAQ: BBBY) is facing an unusual call this morning. Canaccord Genuity has downgraded the rating to “Hold” from “Buy.”

The team noted, “We calculate that BBBY’s market share declined in Q4 for the first time this decade, and we expect a deceleration of top- and bottom-line growth in FY12 and beyond. We believe the company is vulnerable to market share losses given its meager online presence at 1%-2% of total sales. The consolidation of the company’s ancillary support offices into its corporate headquarters presents a potential near-term disruption given headcount reduction within BBBY’s strong merchandising group.

The call also stems around valuation as well.  The team here noted the belief that shares are fairly valued at 15-times the firm’s 2012 earnings estimate and 8-times expected enterprise value over EBITDA.

Lastly, the firm expects a slowing of sales growth.  Canaccord’s team noted that its expected sales and earnings will increase at five-year consolidated growth rates of 6% and 13%, respectively.  That is under the five-year average growth rates of 8% and 16%.

This is one of those downgrades which may seem more like a peaking of the model more than a problem inside the stores. Still, with the loss of market share it might make you wonder if Bed Bath & Beyond faces the same challenges that Amazon.com, Inc. (NASDAQ: AMZN) and other online efforts pose against Best Buy Co., Inc. (NYSE: BBY).  It may be a bit premature to make that call, but that is what it sounds like.

JON C. OGG

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