Bed Bath & Beyond Earnings Preview: 2 Trades for BBBY Stock

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Home goods retailer Bed Bath & Beyond Inc. (BBBY) is in some dire straits. BBBY stock fell roughly 35% in 2015, and the shares have started 2016 off in similar fashion.

Bed Bath & Beyond Earnings Preview: 2 Trades for BBBY StockFurthermore, Bed Bath & Beyond is slated to release its fiscal third-quarter earnings report after the close tomorrow, and Wall Street is expecting more of the same from the struggling retailer.

Checking in with the numbers, Bed Bath and Beyond is expected to post a profit of $1.09 per share, down from $1.19 per share in the same quarter last year. Revenue, meanwhile, is seen essentially flat with year-ago levels, coming in at $2.97 billion.

Despite matching expectation twice and missing twice in the past four quarters, WhisperNumber.com reports that some analysts are expecting results to come in a penny better than the consensus, with a whisper number of $1.10 per share. But the optimism ends there.

According to data from Thomson/First Call, BBBY stock has attracted just four “buy” ratings, compared to 18 “holds,” and four outright “sell” ratings. What’s more, the 12-month price target of $54.50 represents a measly premium of about 11% to yesterday’s close — and this is after the stock’s recent selloff.

Options traders are also betting against the shares. Currently, the January put/call open interest ratio for BBBY stock arrives at 1.30, with puts outnumbering calls among options set to expire within the next month. This ratio rises somewhat (0.92) when we zero in on the weekly January 8 series, but it is far from the typical preference for calls that you see heading into an earnings-style event.

01-06-2016 BBBY
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Overall, weekly January 8 series implies are pricing in a potential post earnings move of about 5.6% for BBBY stock. This places the upper bound at $51.78, while the lower bound lies at $46.30.

A decline to the lower range of this projection would place BBBY stock at yet another multiyear low. Meanwhile, a move back above $50 could by the stock some time by reclaiming round-number support in the region.

Two Trades for BBBY Stock

Put Spread: With poor fundamentals and poor price action, it is no wonder both analysts and options traders are betting against BBBY stock. Those traders looking to capitalize on a continued decline in the shares might want to consider a January $46/$48 bear put spread. At last check, this spread was offered at 51 cents, or $51 per pair of contracts. Breakeven lies at $47.49, while a maximum profit of $1.49, or $149 per pair of contracts, is possible if BBBY closes at or below $46 when January options expire.

Call Sell: If you’d rather not bet directly against BBBY stock, you might consider entering a weekly January 8 series $58 strike call sell position. Such a trade is especially useful if you already own BBBY stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $58.

At last check, this option was bid at 55 cents, or $55 per contract. A sold call allows you keep the premium as long as BBBY stock closes below $58 at expiration.

On the downside, if BBBY rallies above $58 prior to expiration, you could be forced to provide 100 shares at current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/01/bed-bath-beyond-earnings-preview-2-trades-bbby-stock/.

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