Barron’s: Bed Bath & Beyond Hits the Web

Shares of Bed Bath & Beyond (BBBY) are over $74 this morning, which is an 11-month high. The home furnishings store was featured in this weekend’s Barron’s, “Bed Bath: Moving Beyond Bricks & Mortar.” The company has been rightly criticized for its slow move to the Internet. Barron’s says they’re catching up fast.

Bed Bath & Beyond is the best place to start. Sales from the Web still generate only a small fraction of the 1,500-store chain’s revenue—just 5% to 6% this year, according to Barclays analyst Alan Rifkin. But the company’s conservative management team is finally embracing the Internet: E-commerce sales jumped 50% in the most recent quarter. Even so, the stock continues to be valued like that of a fading retailer.

“They are significantly accelerating the portion of capex [capital expenditures] devoted to e-commerce,” says Rifkin, who has covered the company for 20 years. “They have four times the number of people working on IT today that they did four or five years ago.”

This year, Bed Bath & Beyond will spend roughly $175 million on technology alone, a big number for a company whose total capex bill has averaged $210 million a year since 2000, according to FactSet. So far, investors are taking a short-term view, and the spending is weighing on sentiment. The shares are down 8.5% in 2014, and trade at a below-market 13.6 times forward earnings. Just five of the 23 analysts surveyed by FactSet rate the stock a Buy.

Contrarians can find opportunity in the doubt. In its deal for PetSmart (PETM), BC Partners paid nine times earnings before interest, taxes, depreciation, and amortization. At a similar multiple, Bed Bath & Beyond would be worth $87—19% above a recent price of $73.

Barron’s notes that BBBY’s share count is down 14% in the last year.

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Posted by on December 22nd, 2014 at 10:50 am


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