“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, June 29, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade – Bed Bath & Beyond Inc. (NASDAQ:BBBY) Calls

Tuesday, June 30, 2020

** OPTION TRADE: Buy BBBY NOV 20 2020 10.000 CALLS at approximately $3.00 (Up to $3.20).

Place a pre-determined sell at $6.00.

Also include a protective stop loss of $1.20.

Preamble.....

Bed Bath & Beyond Inc. (NASDAQ:BBBY), a specialty retailer of domestic merchandise and home furnishings, has been benefiting from a surge in consumer spending sparked by a huge rebound rally in the beaten-up retail stock.

Bed Bath & Beyond stock has rallied nearly 40% in just three weeks, mostly on optimism about consumer spending as the economy gradually reopens.

The company is one of the best turnaround stories in the market today. As a result, Bed Bath & Beyond stock has visible potential to double over the next six months.

The U.S. economy rebounded with vigor in May as local and state authorities eased Covid-19-related restrictions, unleashing significant pent-up consumer demand.

In May, U.S. retail sales rose 18%.

Looking past Covid-19, Bed Bath & Beyond’s new management team – led by the widely respected Mark Tritton, who was the former chief merchandise officer at Target (NYSE:TGT) – is taking all the right steps to ensure a brighter, more stable and more profitable future for the antiquated retailer.

Bed Bath & Beyond shares were up 6.5% in Friday trading, and another 7.66% yesterday, and have rallied more than 106% over the past three months.

Expect more to come.

Influencing Factors…..

1.         Consumer spending trends will continue to rebound over the next few months, helping fuel a sustained rebound in Bed Bath & Beyond stock.

2.         The company’s management team is doing everything right to ensure a brighter future for the retailer, once headwinds from the novel coronavirus pass.

3.         The valuation on BBBY shares remains severely depressed, and even conservatively optimistic growth assumptions yield huge upside potential in the stock.

New Management…..

Tritton has brought in a whole new cast of C-suite characters to modernize, simplify and optimize Bed Bath & Beyond. The steps they are taking to do this include:

1.         Revamping stores.

2.         Rightsizing the real estate footprint.

3.         Investing in e-commerce and building out omni-channel capabilities like BOPIS (buy-online, pick-up-in-store).

4.         Significantly reducing operating expenses.

5.         Retooling the supply chain to improve gross margins.

If the new management team successfully implements these initiatives, then the company should turn into a more relevant retailer. That means more stable sales and traffic levels, lower expenses, higher margins and bigger profits.

Secures New $850 Million Credit Facility.....

Bed Bath & Beyond said yesterday that it had secured $850 million in financing and said nearly all of its stores will be open next month.

Bed Bath & Beyond said the three-year $850 million credit facility, which is asset-backed, will support the group's balance sheet as it prepares to re-boot operations in the wake of the worst of the coronavirus pandemic.

Stores Re-Opening.....

Bed Bath & Beyond said some 95% of its existing store fleet will be opened by the end of this week, with nearly all of its stores up-and-running by early July. 

"We have been delighted to welcome our customers back as we re-opened hundreds of stores in the last few weeks. At the same time, we are pleased with the response from our loyal customers to our new BOPIS (buy online, pick up in-store) and contactless Curbside Pickup shopping experience," said CEO Mark Tritton. "These are important, targeted investments that strengthen our service offering and competitive position for the long term."

"While the impact of the COVID-19 situation has been felt across our business, we have taken measured, purposeful steps to maintain our financial flexibility," he added. "We ended our fiscal 2020 first quarter with approximately $1.2 billion in cash and investments, and we now have access to additional liquidity through our new ABL facility." 

Past Earnings…..

Bed Bath & Beyond last issued its quarterly earnings results on Wednesday, April 15th.

The retailer reported $0.38 earnings per share for the quarter, beating analysts’ consensus estimates of $0.20 by $0.18. Bed Bath & Beyond had a negative net margin of 5.50% and a positive return on equity of 3.03%.

The firm had revenue of $3.11 billion during the quarter, compared to the consensus estimate of $3.08 billion. During the same period in the prior year, the firm earned $1.20 EPS. The business’s revenue was down 6.1% on a year-over-year basis.

Future Earnings…..

Bed Bath & Beyond is scheduled to announce its next quarterly earnings results on Wednesday, July 8th.

Brokerages expect that Bed Bath & Beyond will report sales of $1.30 billion for the current fiscal quarter. Bed Bath & Beyond posted sales of $2.57 billion in the same quarter last year, which suggests a negative year-over-year growth rate of 49.4%.

Also, brokerages expect that Bed Bath & Beyond will announce ($1.42) earnings per share (EPS) for the current quarter. Bed Bath & Beyond posted earnings per share of $0.12 in the same quarter last year, which indicates a negative year over year growth rate of 1,283.3%.

BuyBuy Baby Strength…..

Buybuy Baby, the infant-and-toddler-focused retailer that's part of the Bed Bath & Beyond Inc. portfolio, could be the company's most valuable name, according to Bank of America analysts.

Bank of America analyst Curtis Nagle raised his price target for the home-goods retailer to $14.50 from $12.50 and affirmed his buy rating, citing strength in its BuyBuy Baby division.

That unit is a chain of 135 stores selling clothing, strollers and other items for youngsters.

Nagle calculated that BuyBuy Baby’s enterprise value has reached almost the entire value of Bed Bath & Beyond.

The division doesn’t get its due from investors because of a “nearly complete lack of disclosure” that has made it difficult to analyze the business, Nagle said.

BuyBuy Baby sales are running at a pace of at least $1.2 billion, he said. And it’s producing a 9% Ebitda margin, which is well above the company average.

The brand represents the only one that has grown over the past five years for Bed Bath & Beyond, Nagle said, according to Bloomberg.

BuyBuy Baby can “easily” grow by mid-single digits for the next five years with new leadership.

BuyBuy Baby’s e-commerce business is strong, too, boosted by the coronavirus pandemic and the general consumer shift to online shopping, he said.

Analysts Outlook…..

It’s been a difficult year for Bed Bath & Beyond, but the stock has been beaten down too far, argues Wedbush, especially given that it’s managed to make meaningful inroads against its rival Amazon.com on product prices—a key factor as consumers focus on value.

Analyst Seth Basham reiterated a Buy rating on Bed Bath recently and raised his price target to $12 from $8. His enthusiasm comes from the results of his recent product pricing survey, which showed that items on the company’s website were about 9% higher.

Several equities analysts have recently commented on the company…..

  • 6/26/2020 – Bed Bath & Beyond had its price target raised by analysts at Bank of America Corp from $12.50 to $14.50. They now have a “buy” rating on the stock.
  • 6/23/2020 – Bed Bath & Beyond was upgraded by analysts at BidaskClub from a “hold” rating to a “buy” rating.
  • 6/16/2020 – Bed Bath & Beyond had its price target raised by analysts at Wedbush from $8.00 to $12.00. They now have an “outperform” rating on the stock.
  • 6/12/2020 – Bed Bath & Beyond had its “buy” rating reaffirmed by analysts at Bank of America Corp. They now have a $12.50 price target on the stock.

Four equities research analysts have rated the stock with a sell rating, nine have given a hold rating, six have issued a buy rating and one has given a strong buy rating to the stock. Bed Bath & Beyond presently has a consensus rating of “Hold” and an average target price of $10.19.

So…..

Bed Bath & Beyond has a market capitalization of $1.19 billion, a PE ratio of -1.94 and a beta of 2.41. The company has a quick ratio of 0.70, a current ratio of 1.55 and a debt-to-equity ratio of 1.87. The firm has a 50-day moving average of $7.65 and a 200 day moving average of $10.24. Bed Bath & Beyond Inc. has a twelve month low of $3.43 and a twelve month high of $17.79.

Bed Bath & Beyond is one of the most enticing turnaround stories in the market today.

So long as management implements its various profit-boosting initiatives and consumer spending trends continue to rebound, then Bed Bath & Beyond stock will stay on a glide path toward $20.