Shares of Bed Bath & Beyond Inc. (BBBY) reached a new 52-week high of $80.26 yesterday and eventually closed trade at $80.13. The average volume of shares traded over the last 3 months was over 1,285K. Notably, this leading fashion apparel, cosmetics and home furnishings retailer amassed a year-to-date return of 42.7%.
Moreover, this home goods retailer currently trades at a forward P/E of 15.9x, a 4.6% discount to the peer group average of 16.66x. The last traded price is approximately 5.5% lower than the Zacks Consensus average analyst price target of $84.77.
We believe that the company’s price appreciation is attributable to Moody’s Corporation’s (MCO) recent announcement of a positive outlook for the U.S. consumer durable industry. Moody’s declared that consumer durable companies would witness a 5%–6% rise in operating profit in the next 12–18 months owing to recovery in the U.S. economy, signs of stability in the housing market and increased spending by consumers.
Apart from this, given Bed Bath & Beyond’s earnings streak and an upbeat full-year 2013 earnings outlook, the stock could be considered for investment.
The company’s strategic endeavors are paying off well, as reflected in its second-quarter fiscal 2013 earnings that rose 18.4% to $1.16 per share, benefiting from the performances of World Market (Cost Plus Inc.) and Linen Holdings – which were acquired last year. Moreover, the reported figure beat the Zacks Consensus Estimate by a penny. With regard to earnings surprise, Bed Bath & Beyond has surpassed the Zacks Consensus Estimate in the trailing 4 quarters by an average of 0.3%.
The company also witnessed sales growth of 8.9% year over year and outperformed the Zacks Consensus Estimate, driven by the aforesaid acquisitions as well as rise in comparable store sales and store openings.
Buoyed by better-than-expected quarterly results, Bed Bath & Beyond raised its lower-end fiscal 2013 earnings per share guidance to $4.88 from $4.84 projected earlier. Therefore, the company’s new earnings guidance for fiscal 2013 is $4.88–$5.01 per share, against the previous forecast of $4.84–$5.01. At present, the Zacks Consensus Estimate is $5.00.
The company’s initiatives to expand and renovate stores, boost online presence, incorporate technological advancements and revivify its merchandise mix to enhance productivity are also commendable. Such measures bode well for future sales. The company anticipates its total store openings for fiscal 2013 to be in the mid-30s.
However, since Bed Bath & Beyond carries a Zacks Rank #4 (Sell), investors should be cautious about the stock’s performance. Notably, the company’s margins remained soft during the second quarter due to higher operating costs, increase in coupons and their redemption, higher markdowns and shift in the mix of merchandise sold to lower margin categories.
Going forward, we expect this weakness to continue due to persistence of the above factors in fiscal 2013 as well as the ongoing consolidation of World Market and Linen Holdings.
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