Wall Street is optimistic about Bed Bath & Beyond (BBBY), one of the largest specialty retailers of home furnishing and bath & linen related items in the U.S., which is due to report its second quarter results on Wednesday, September 25, 2013, after close of the market. Analysts project a profit of $1.15 a share, a rise from 98 cents per share a year ago. The company has projected its comparable-store sales to grow in the range of 2%-4%.
The improvement in the housing market has helped sales of home products and will also help BBBY achieve positive quarterly results. In the past four quarters, the company’s earnings have managed to meet the Street’s view twice and beat it once. Also, BBBY has had a distinct advantage over online competition, such as that presented by Amazon (AMZN), as customers often wish to see home goods in person before purchasing.
Bed Bath & Beyond has one drawback: the retailer’s gross margins, which declined in the first quarter due to increased coupon redemptions. This decline is expected to continue in this quarter as U.S. buyers continue to explore money-saving options.
Technical Details Look Good
Recently, Bed Bath & Beyond has pulled back slightly which helps reduce the cost for entry of the options call recommended. It has a 52-week low of $54.33 and a 52-week high of $78.25. The stock’s 50-day moving average is $74.87 and its 200-day moving average is $66.47. The company has a market cap of $15.868 billion and a price-to-earnings ratio of 16.08.
Earnings — Wall Street Optimistic
The consensus estimate is up from three months ago when it was $1.14, but hasn’t changed over the past month. For the fiscal year, analysts are projecting earnings of $5.01 per share. Revenue is projected to be $2.81 billion for the quarter, 8% above the year-earlier total of $2.59 billion. For the year, revenue is projected to come in at $11.66 billion.
Profit slid in the first quarter, breaking a two-quarter streak of rising net income. The 10% year-over-year profit decline in the first quarter can be compared with the increases in previous quarters; profit rose 7% in the fourth quarter and 2% in the third quarter.
Competition Not A Threat
Bed Bath & Beyond has fared much better than many other retailers because of its specific niche. BBBY also enjoys a pricing advantage over its other competitors, as well as the fact that many customers prefer to see the products they plan to put in their homes in person before buying them, helping to fend off online competition from Amazon.com (AMZN) and other Internet-based retailers.
Analysts Like BBBY
The majority of analysts rate Bed Bath & Beyond as a buy and are generally bullish on the stock.
Recently, many analysts have upped their price targets on Bed Bath & Beyond:
- UBS AG from $74.00 to $80.00.
- Canaccord Genuity from $79.00 to $84.00. They now have a buy rating on the stock.
- Thomson Reuters/Verus upgraded shares from a hold rating to a buy rating.
Improved Housing Industry Helps BBBY
The housing industry in the U.S. is improving, which is positively impacting the sales of home related products. Standard & Poor’s Case-Shiller home price index reported its best gains in the last seven years in May 2013. During August, a number of U.S. consumers spent more on houses and cars while holding back on other products. This trend bodes well for Bed Bath & Beyond’s growth and can offset the impact of weak consumer spending.
Hedge Funds Increase Positions
In preparation for the third quarter, hedge funds that held long positions in Bed Bath & Beyond, a change of 18% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully. Two major hedge funds are:-
- Royce & Associates with the largest position in Bed Bath & Beyond, worth close to $168.6 million, accounting for 0.5% of its total 13F portfolio.
- Citadel Investment Group held a $89.7 million position; 0.2% of its 13F portfolio is allocated to the company.
If analysts are on target, Bed Bath & Beyond has been cashing in on the uptick in home goods spending. Analysts polled by Thomson Reuters see earnings rising 17% to $1.15 a share. That would be its biggest profit gain since the second quarter of 2012. They see sales rising 8.5% to $2.81 billion. That would be a slower pace than the past four quarters of double-digit gains.
Wedbush analyst, Joan Storms, sums Bed Bath & Beyond’s situation nicely in a report excerpted by Investor’s Business Daily…
…store checks at Bed Bath & Beyond for back-to-school (college) were positive, “as the company continues to position itself well among competitors with its dorm checklist and purchase-online-pick-up-at-a-store-near-your-school convenience.”
She also said she is maintaining her outperform rating on Bed Bath & Beyond.
“On a longer-term basis, we believe BBBY is a solid growth story and should continue to benefit from industry dominance, good visibility for cross-merchandising opportunities, future growth potential for newer concepts, and strong balance sheet and cash flow,” she wrote.
Therefore, take advantage of the following options call:
OPTIONS TRADE: Buy the BBBY Jan 2014 75.000 call (BBBY140118C00075000) at or under $3.80, good for the day. Place a protective stop limit at $1.50 and a pre-determined sell at $5.80.
As of this writing, Ian Harvey did not hold a position in any of the aforementioned securities. Visit his site, stock-options-made-easy.com, for a wealth of information that will help you benefit from the exciting and lucrative world of options trading.