Looking At Bed Bath & Beyond
Posted by Eddy Elfenbein on June 20th, 2006 at 10:34 am

If you’re new to investing, Bed Bath & Beyond (BBBY) is a good stock to look at. The financials are about as straightforward as they come. No pro forma nonsense or huge “one time” charges that seem to happen every single quarter (Cendant, I’m looking at you).
Here are BBBY’s financial results for the past few years:

As always, I pass the graphics savings on to you.
A few things to point out. You’ll notice that there’s a bulge in the February quarters (the company’s fourth, which technically end in early March but it’s my damn table). That’s because of the holidays so it’s important to compare similar quarters.
Another thing you’ll notice—and something that I place a lot of emphasis on—is the company’s consistency. Here’s a chart of BBBY’s trailing four-quarter sales.

That’s what I like to see, a nice smooth line. The red is Wall Street’s estimate. Yes, someone is paid a great deal of money to draw that line out a few more points. Like a nine-year-old couldn’t find a trend here.
Now let’s look at the operating margins. This is important.

This impresses me a lot. Operating margin is one of the purest measures of how efficiently a company is managing its business. BBBY has been doing very well lately. That last little downtick concerns me a little. But as long as the margins don’t show a severe downtrend, I’m not too worried. Few things are more painful to a company than eroding margins.
Now here’s the company’s earnings-per-share:

Once again, we see a nice smooth line. But what isn’t a smooth line is the stock chart. Shares of BBBY haven’t budged in over four years. This chart pretty much sums it up:

Rising earnings and a flat stock means a plunging earnings multiple. This issue is really about risk. The stock could certainly stay flat, or even fall. Who knows…we can’t predict the future. But we can see that the company has performed very consistently, and its relative valuation is very low. That’s one of the best ways to control for risk.
Earnings are due tomorrow after the market closes.

FactSet’s Earnings
Posted by Eddy Elfenbein on June 20th, 2006 at 9:26 am

FactSet Research Systems (FDS) reported fiscal third-quarter earnings of 41 cents a share (including a penny a share from a tax benefit). This is good news. Wall Street was looking for 39 cents a share.
The company also sees revenue for this quarter coming in between $102 million and $105 million. Wall Street was expecting $98.7 million. The stock is up in pre-market trading.

P/E Ratio of the Hombuilders
Posted by Eddy Elfenbein on June 20th, 2006 at 6:28 am

Despite making huge profits, homebuilding stocks have been pummeled lately. Check out how low some of these P/E ratios are:

This is, of course, trailing earnings. The profits are going to be a little harder to come by next year, and the year after.
Homebuilding is the ultimate boom-and-bust industry–it’s all about timing. Don’t even think about buying a homebuilder until the last person has given up on the industry. Here’s how the sector has performed over the last three years:

MarketWatch Goes Blogging
Posted by Eddy Elfenbein on June 20th, 2006 at 6:08 am

Welcome to blogging, Herb Greenberg, Bambi Franciso and Frank Barnako.

Hurricane Season
Posted by Eddy Elfenbein on June 20th, 2006 at 6:05 am

Congratulations to the Carolina Hurricanes, the 2006 Stanley Cup Champions.
Here’s how the Carolina-to-win contract traded at TradeSports during Game 7. I think you can tell when the goals were scored.

Make a Killing in the Market
Posted by Eddy Elfenbein on June 19th, 2006 at 3:45 pm

Today’s market-induced suicidal tendencies story brought to you courtesy of India:

The sudden stock market crash has triggered severe depression among a number of investors and some have even developed suicidal tendencies, according to a noted psyschiatrist in Ahmedabad.
“The downswing in the Sensex has heightened anxiety level among several investors and many of them are coming to me in acute panic state as they want to end their lives,” Dr Hansel Bachech noted psychiatrist and Member Mental Health Authority, Gujarat.
Usually the symptoms that they exhibit are dryness of the mouth, severe palpitation, breathlessness, uneasy feeling in the stomach, insomnia and acute fear.

That’s strange. I get all those symptoms from listening to Garrison Keillor.

Earnings Preview: Bed Bath & Beyond
Posted by Eddy Elfenbein on June 19th, 2006 at 3:15 pm

From AP:

OVERVIEW: Home furnishings retailer Bed Bath & Beyond operated 742 namesake superstores as of the end of February, in addition to Christmas Tree Shops Inc., a discount home merchandise chain, and Harmon Stores Inc., a discount health and beauty retail chain.
BY THE NUMBERS: The retailer didn’t provide any financial forecasts in its previous earnings release in April. Wall Street expects a quarterly profit of 35 cents per share on projected sales of $1.39 billion, according to a poll by Thomson Financial.
ANALYST TAKE: “Despite concern over a softening macro environment, we remain very comfortable with our first-quarter estimate of 35 cents per share, which is in line with guidance and consensus,” Lehman Brothers analyst Alan Rifkin wrote in a June 15 client note. “From a risk/reward standpoint, we like the stock ahead of first-quarter earnings.”
Rifkin added that as the home furnishings space continues to experience difficulties, “we believe it is prudent to focus on companies like Bed Bath & Beyond, where fundamental execution remains solid.”
WHAT’S AHEAD: Rising interest rates and stubbornly high energy prices are damping consumer spending. Additionally, mass market discounters like Target and specialty retailers like Pier 1 Imports have made the home furnishings space intensely competitive.
STOCK PERFORMANCE: Bed Bath & Beyond’s stock recently traded at $36.60 on the New York Stock Exchange, and is up slightly so far this year. It hit a 52-week low of $34.38 on June 14 and is off 22 percent from a year-high of $46.99 hit in July 2005.

The Noonday Market
Posted by Eddy Elfenbein on June 19th, 2006 at 11:32 am

I was all set to give this market a yellow card, but things are looking somewhat better today, at least our stocks are. My advice is, don’t be overly impressive with Thursday’s rally. It was quite nice, yes. But we gained back what we had just lost. The key is watching the behavior of long-term interest rates. Whenever long-term bonds and the stock market part company, the odds greatly increase that something big is about to happen.
The best news is the energy stocks keep falling. The Dow Oil and Gas Index (^DJUSEN) is down again today. When I set the Buy List for this year, I avoided all energy stocks. I thought that the sector was overpriced. Naturally, it went even higher. If you want to beat the S&P 500, I think all an investor needs to do is stay away from basic materials and energy. I just don’t see how those prices can hold up.
The Buy List is beating the broader market again today. Our biggest gainer is Fair Isaac (FIC), which is up nearly 4%. We have three earnings reports coming. FactSet (FDS) reports tomorrow. Bed Bath & Beyond (BBBY) reports on Wednesday, and Biomet (BMET) comes the Wednesday after. And don’t forget that Expeditors (EXPD) will be splitting 2-for-1 soon.
I think Bed Bath & Beyond is very a good buy right (full disclosure, I do own it). The Street’s current earnings estimate is for 35 cents a share, which the company will almost certainly beat. One small side note, since BBBY does a large percentage of its business during the holidays, the company ends its fiscal year in February (hence the unusual reporting date). This earnings report will be for its first quarter, so the totals will be a lot less than it had for the fourth quarter. Nothing is wrong, that’s perfectly normal for them.
The stock is trading at less than 17 times this year’s earnings. Plus, I wouldn’t be surprised to see the company guide higher after the earnings report.

Nestle to Buy Jenny Craig
Posted by Eddy Elfenbein on June 19th, 2006 at 9:19 am

Despite the conflict of interest, Nestle SA is buying Jenny Craig for about $600 million. One company wants to make you fat, the other tries to make you thin. Interesting synergy there. Based in Switzerland, Nestle is the largest food company in the world.
This is an interesting move for Nestle. The weight-loss market is huge. Stocks like NutriSystem (NTRI) and Medifast (MED) have been some of the best-performing stocks of the past few years. NutriSystem’s stock was up over 1,160% last year.
Also, the owners of Jenny Craig will make a killing. The company was bought by private equity firms in 2002 for $115 million. That’s a profit of over 400% in four years.

Profiting From Deflation
Posted by Eddy Elfenbein on June 16th, 2006 at 3:58 pm

For all the talk we hear about inflation, Charles Schwab (SCHW) has seen its profits explode even as it has cut its prices. Actually, the company hasn’t merely cut its prices, it has repeatedly hacked them. Still, Schwab will make more money this year than it did at the height of the tech bubble. Now Schwab has announced yet another round of price cuts:

The company’s comeback coincided with a decision two years ago to dismantle a maze of higher prices and new fees imposed to recoup some of the revenue that evaporated as investors made fewer stock trades.
The about-face has been orchestrated by founder Charles Schwab, who returned as the company’s chief executive in July 2004 after the board ousted his right-hand man, David Pottruck.
With its latest price decreases effective July 1, Schwab’s top commission for an online trade of up to 1,000 shares will fall by $7, or 35 percent, to $12.95 — still slightly above Internet rivals like TD Ameritrade Holding Corp. and Scottrade Inc.
Still, the new price is a far cry from two years ago when Schwab charged as much as $29.95 per online trade. The company also is reducing or dropping a bevy of other service fees.
“We are reasserting and protecting our value proposition,” Dodds said.
By cutting its fees, Schwab will temporarily relinquish some revenue in hopes of regaining it back — and then some — as the lower prices encourage customers to trade more stocks and keep more money in the company’s accounts.
The strategy has paid off so far. Schwab’s customers ended May with $1.27 billion in their accounts, up from $985 million before the price-cutting began two years ago. Meanwhile, the brokerage averaged 269,600 revenue generating-trades last month, a 59 percent increase from the previous year.
If the upcoming price cuts had been effect during this year’s first quarter, Schwab estimated its revenue for the period would have been trimmed by about $25 million, or 2 percent.
Schwab backtracked on its fees after realizing its higher prices had alienated many cost-conscious customers originally drawn to the brokerage as a moneysaving alternative to more traditional Wall Street firms.