WSJ Looks at Bed Bath & Beyond

Bed Bath & Beyond ($BBBY) is due to report earnings after today’s close. In the WSJ, Spencer Jakob takes a closer look at the home furnishings store:

In the past 10 quarters, the stock has dropped sharply seven times during the trading session following results releases—by an average of nearly 9%. But revenue growth hasn’t faltered during that time and those instances have mostly been good short-term buying opportunities. Whether the market will serve up another one after Thursday’s fiscal third-quarter report remains to be seen. Either way, Bed Bath & Beyond looks attractive despite rebounding by over 30% in the past six months.

For the fiscal quarter in question, which ended in November, the company had said it expected earnings per share between $1.17 and $1.21, compared with $1.12 a year earlier. Analysts at Nomura forecast sales during the period were strong, while Canaccord Genuity thinks online sales—Bed Bath & Beyond got a slow start in e-commerce—rose to more than 10% of revenue.

One concern: This expansion has gone hand in hand with a big rise in capital expenditure. Some perspective is warranted. Even with the higher depreciation associated with a big investment in e-commerce, operating margins over the past 12 months were slightly higher than what the company has managed over the past 15 years, on average.

Meanwhile, the price investors are willing to pay for the company, adjusted for net cash, as a multiple of earnings before interest, taxes, depreciation and amortization, is less than three-quarters of its average over the same period.

Bed Bath & Beyond, which doesn’t pay a dividend, has been a good steward of shareholders’ cash by generating a return on invested capital far above peers. A recent sale of debt and an expanded stock buyback should enhance that as long as the underlying business holds up. For patient investors, that provides a plush cushion against bouncing margins.

Posted by on January 8th, 2015 at 2:10 pm


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