Specialty home goods retailer Bed Bath and Beyond (BBBY) has been a risky investment of late, with BBBY stock plunging nearly 25% so far this year to trade near fresh annual lows. In fact, most on Wall Street have already written BBBY stock off … but with the right company outlook, shares could have rebound potential in the wake of tomorrow afternoon’s first-quarter earnings report.
For the record, the consensus is expecting first-quarter Bed Bath and Beyond earnings of 94 to 95 cents per share on revenue of $2.96 billion. This represents increases of 1% and 3%, respectively, over the same quarter last year. There is a smidgen of bullish sentiment in terms of BBBY’s earnings, as the whisper number arrives a penny higher at 96 cents per share, according to WhisperNumber.com.
Historically, Bed Bath and Beyond has had trouble in the earnings confessional. According to data from Zacks, the company has missed Wall Street’s expectations twice, matched once and topped the consensus estimates once during the past year. Combine this shaky performance with poor guidance, and it’s easy to see why many investors are shying away from BBBY stock.
Speaking of shying away, data from Thomson/First Call indicates that 17 of the 24 analysts following BBBY stock rate it a “hold” or worse. Meanwhile, the number of BBBY shares sold short spiked by nearly 25% during the most recent reporting period, and now total roughly 9.6 million shares, or about 5% of the stock’s total float.
The options community also harbors some negativity. For instance, the put/call open interest ratio for the weekly June 27 series of options arrives at 1.43, with puts easily outnumbering calls. The tune changes when we pull back to the July options series, however, as the put/call open interest ratio plunges significantly to 0.78, with calls now the dominant contract.
This preference for July calls may signal that short sellers are hedging their bets against a potential post-earnings pop in BBBY stock, and judging from recent housing data, the potential is there. Specifically, while overall housing data has been weaker of late, May existing family home sales rose almost 5%, marking a potential bright spot for guidance. Furthermore, Bed Bath and Beyond also might have benefited from pent-up demand rolling over into the quarter from an unusually cold winter.
Click to Enlarge The potential bullish play here is that with everyone already betting against BBBY, the bar for success (or at least non-failure) has been set quite low. In other words, the stock has the potential to entice bargain hunting investors on any hint of a potential turnaround.
Returning to BBBY stock options, June weekly implieds are pricing in a potential post-earnings move of about 6.3%. This places the upper bound near $64.87, while the lower bound lies at $57.13.
2 Options Trades for BBBY Stock
Bull Call Spread: Those investors looking to take a chance on a rebound in BBBY stock might want to consider an August $60/$65 bull call spread. At the close of trading on Monday, this spread was offered at $2.20, or $220 per pair of contracts. Breakeven lies at $62, while a maximum profit of $2.80, or $280 per pair of contracts, is possible if BBBY stock closes at or above $65 when August options expire.
Selling Puts: However, a July $56 put sell might be a more palatable way of capitalizing on technical support. At last check, the July $56 put was bid at 57 cents, or $57 per contract. The upside to this put sell strategy is that you keep the premium as long as BBBY stock closes above $56 when July options expire. The downside is that should BBBY trade below $56 ahead of July options expiration, you could be assigned 100 shares for each put sold at a cost of $56 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.