April 10, 2014
Recommendation: C-rated Hold
Welcome to the Stock of the Day for April 10, 2014. As I write this, shares of Bed Bath & Beyond Inc. (BBBY) are down over 6% after the big box retailer released fourth-quarter results. Is this pullback a red flag for problems down the road or a good buying opportunity? We'll find out in today's Stock of the Day.
Company Overview: If you have a kid in college or if you are in charge of your home's decor, you have probably stepped foot in a Bed Bath & Beyond. There are over 1,000 of these stores spread across North America and they specialize in selling home furnishings as well as food, giftware, beauty care items as well as baby merchandise. Bed Bath and Beyond Inc. also operates a number of other store chains, including Christmas Tree Shops, Harmon, Harmon Face Values and buybuy Baby.
Earnings Rundown: For the fiscal fourth quarter Bed Bath & Beyond reported net earnings of $333.3 million, or $1.60 per share, on $3.20 billion in net sales. Compared with the year ago quarter this represents a 11% drop in profits and a 6% decline in sales. Analysts had called for $1.60 EPS on $3.22 billion in sales so Bed Bath & Beyond matched earnings estimates and missed sales estimates. What really sent shares lower at today's open was the company's weak guidance. Looking ahead to the first quarter, management anticipates earnings between $0.92 and $0.96 per share. For fiscal 2014 the company expects earnings per share to increase by a mid-single digit percentage. Both the short-term view and the long-term view come below analyst estimates.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. The stock has sustained significant losses since December; the holiday season was not good to Bed Bath & Beyond. That's mostly because the buying pressure dropped off after the company missed earnings projections for the third quarter. BBBY receives a D for its Quantitative Grade. On the fundamentals side, the company also needs some work. Of the eight financial metrics I graded it on, it received Cs on five (including sales growth, operating margin growth and earnings growth), Ds on earnings surprises, and As on two (cash flow and return on equity). These grades average to a C Fundamental Grade, and I don't expect this to improve once we've plugged the latest quarterly data in.
Bottom Line: As of this posting, April 10, I consider BBBY a C-rated Hold.
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