24/7 Wall St.

Bed Bath & Beyond Inc. (NASDAQ: BBBY) is scheduled to release its most recent quarterly results later this week. One analyst is getting out ahead of the report and believes that it’s Bed Bath & Beyond’s time to shine.

Wedbush upgraded the domestics retailer to an Outperform rating from Neutral and raised its price target to $16 from $14, representing 62% upside potential. While turning around declining retailers is a very difficult task, particularly amidst unfavorable secular trends and soft industry sales growth, Wedbush sees a good chance of stabilization — if not growth — in earnings over the next two years as sweeping changes take hold.

The boutique brokerage firm noted that Bed Bath & Beyond has a reconstituted board of directors with much-improved governance, is resetting the cost structure with an initial 7% reduction of corporate staff (mostly middle management), has formulated a plan to reduce inventory by $1 billion (roughly 35%), is rapidly refreshing stores to improve the shopping experience ahead of the holiday selling period, has launched two private label brands and is evaluating opportunities to leverage its heavy store lease expiration cadence and sell noncore assets.

Wedbush believes that while much more needs to be done to stem sales and profit declines, it sees two near-term catalysts for the company. First, possibly in conjunction with the company’s earnings report on Wednesday, October 2, the firm expects Bed Bath & Beyond to name a well-regarded and highly experienced CEO to lead this transformation. Second, Wedbush expects investors to better understand underlying asset value when the company starts selling noncore assets and owned real estate, with Cost Plus World Market the most likely near-term candidate.

In its report, Wedbush further detailed:

Given extremely high short interest at 52% of the float, any positive news could drive Bed Bath & Beyond shares higher. While short sellers have been emboldened by accelerating declines in profitability at Bed Bath & Beyond in recent years and the fall from grace of smaller home furnishings retail peers including Pier 1 Imports (PIR), Kirkland’s (KIRK) and Tuesday Morning (TUES), we see very good probability of higher cash flows and moderating profit declines—if not stabilization or increases— in the next two years through traffic-driving initiatives, merchandising and sourcing changes and cost reduction. That said, 2Q19 results are likely to fall short of consensus expectations that are not aligned with company guidance, and 2019 guidance could be withdrawn as the company clears inventory, digests list 4 tariffs and gives the new CEO time to evaluate the business; nonetheless, we believe buy side expectations are very low, other catalysts are more powerful and underlying value is well above current trading levels.

For the quarter, Wall Street’s consensus estimates are calling for $0.28 in earnings per share (EPS) and $2.75 billion in revenue. The same period of last year reportedly had $0.36 in EPS and $2.94 billion in revenue.

Shares of Bed Bath & Beyond traded up about 7% on Monday to $10.60, in a 52-week range of $7.31 to $19.57. The consensus price target is $13.92.

24/7 Wall St.
Jefferies Has 4 Red-Hot Growth Stocks to Buy With Huge Upside Potential