Bank of America analyst Jason Haas has reiterated an Underperform rating on Bed Bath & Beyond (NASDAQ:) stock ahead of tomorrow’s earnings report.
Haas also reminded investors that BBBY stock is one of the top underperform ideas for 2022 at Bank of America (NYSE:) as the company continues to lose market share to rivals.
“BBBY’s 4Q comp guidance of down high single digits implies comps down roughly 10% on a 3-year basis vs. +23% 3-year home furnishings industry growth per the US Census. BBBY has been losing share for years as consumers have increasingly consolidated purchases at Amazon (NASDAQ:) and other mass retailers. The share losses accelerated further following a turnaround strategy which included coupon reductions and private label expansion. We think mgmt. moved too quickly, core customers were lost and now more sharp promotions are being used to recuperate sales including 20% off entire orders, free same day shipping ($10 value) and $10 gift cards for $50 spent,” Haas said in a client note.
The analyst is especially vocal about BBBY’s decision to introduce a $1 billion stock buyback program, which has “materially worsened” the balance sheet.
“This will make completion of BBBY’s turnaround more difficult, as there is much heavy lifting still ahead including standing up a distribution center network and implementing modern IT systems. BBBY has cut capex plans this year from $400mn+ to $350mn. BBBY has also opened one buybuy BABY (“BABY”) store as of 3Q21 despite plans to open 50 from ’21-23. BBBY’s turnaround could work, but will take many years in our view, and activist investor, RC Ventures, who recently obtained three board seats is already advocating for a strategic change,” Haas added.
Finally, the analyst has reflected on BBBY stock price which trades over 100% higher compared to his price target of $9.50. Haas adds that BBBY shares are “disconnected from the fair value” after Ryan Cohen, co-founder of Chewy (NYSE:), got involved.
“Retail investors are looking for a short squeeze following the sale of BABY which Cohen believes is worth “several billion.” We value BABY at just over $500mn. The company may announce a new buyback authorization with earnings, but it could be hard to complete with less cash on the balance sheet and our expectation for negative free cash flow over the next several years. The fiscal year has likely started off weak; we expect a “hockey stick” guide,” the analyst concluded.
BBBY stock price is down 0.4% in pre-open Tuesday.
By Senad Karaahmetovic