5 Beaten-Down Turnaround Candidates for 2018

Bed Bath & Beyond: Dirt Cheap, but for Reasons

Bed Bath & Beyond Inc. (NASDAQ: BBBY) shares are down by roughly half in the past year, but the story is far worse over a longer period. Its stock was nearly $80 a share in late 2013, and the stock is now closer to $20.

Bed Bath & Beyond has become so hated by investors that even meeting or beating earnings estimates is not good enough. That was the case even in recent weeks. Its model is susceptible to Amazon and a slew of others, and there are concerns that its margins are likely to contract endlessly. Bed Bath & Beyond’s most recent quarter demonstrated how no investor wants to hear it. Still, at six times current earnings and eight times expected earnings, there is a chance that a private equity buyer might consider a shot here, now that it is worth so little and now that shares have slid.

Bed Bath & Beyond closed out 2017 at $21.99, after having been an $80 stock in 2013 and a $75 stock in early 2015. Short sellers had been increasing their bets again in Bed Bath & Beyond for most of 2017, but that big bet against it has lightened up in December (18.5 million shares) after peaking in October (at 23.3 million).

Shares of the struggling retailer have a 52-week range of $19.07 to $42.36, and the consensus price target is $22.78. The market cap is $3.2 billion, and the dividend yield is 2.7%. Bed Bath & Beyond shares were at $21.44 after the first week of trading in 2018.

Chipotle: Trying to Move Beyond Montezuma

Chipotle Mexican Grill Inc. (NYSE: CMG) was down about 23% in 2017, and it was given the dubious honor of having one of the worst 20 CEOs in 2017. That’s about to change with new blood to run the company, but the reality is that investors are going to demand that Chipotle demonstrate that it can grow back into a desirable company. This was the poster-child food stock for millennials before it started getting its customers sick. The big problem is not just that Chipotle shares fell to less than $300 recently from about $500 a year ago. The big problem here is that Chipotle’s stock price is down from $750 back in 2015.

For Chipotle to win, it will have to do a better job of convincing customers that it is safe. The sad thing is that if someone catches a cold after having been at a Chipotle in the past week, the company might get blamed. People in America get sick from food-borne illnesses and cleanliness issues every day of the week. Chipotle just has to be able to demonstrate that it is back to way above average and that this is a time to focus on the core brand. Again, it’s a “show me!” story that has to be lived up to.

At $289.00 at the end of 2017, Chipotle shares have a 52-week range of $263.00 to $499.00 and a consensus price target of $317.26. Its market cap is $8.2 billion. Turnaround buyers have committed at least some hope that 2018 will be the big turnaround year. After all, its shares have rallied almost 10% in the first week of the year. Chipotle’s stock was last seen at $318.47.

Frontier Communications: The Final Frontier?

Frontier Communications Corp. (NASDAQ: FTR) was down 86% in 2017, and frankly the company seems to be in something of a hopeless spot. The stock still screens out as paying a dividend yield of 35.1%. That is even after handily cutting its payout from before. For a turnaround to be possible, maybe Frontier needs to consider how it fits into the highly leveraged companies under tax reform and work on fixing that problem at the expense of its dividend.

Analysts see Frontier’s revenue falling to $8.6 billion in 2018 and then to $8.3 billion in 2019, after having been at an estimated $9.1 billion in 2017. What if the company manages to slow that bleeding? It seems hard to imagine that a massive return to earnings is likely. Frontier’s balance sheet almost balances out as flat if you back out the $9 billion in goodwill, so it would be a hard guess that it could take on a white knight buyer after shareholders have suffered down to the lows since the 1990s. That being said, a new CEO and a new direction might do what an outside company cannot.

Frontier shares closed out 2017 at $6.76 and have a 52-week range of $6.08 to $57.30. The consensus price target is $13.34, and the market cap is $550 million. The stock was last seen at $7.34 a share after a week of trading in 2018.

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