Bed Bath & Beyond Inc. (BBBY) — I first recommended selling BBBY stock short in the June 22 Trade of the Day at $71 with a target of $63. The objective was met in August, but shares continued to plunge. While the decline has taken a breather in recent months, Wednesday’s high-volume breakdown signals traders have another opportunity to make money on the short side.
Retail stocks fell across the board Wednesday as investors grew nervous about consumer spending following a disappointing quarterly report from Macy’s, Inc. (M).
When Bed Bath & Beyond reported earnings on April 7, the company beat analysts’ estimates, posting adjusted earnings per share of $1.85 versus the Zacks consensus estimate of $1.80.
But S&P Capital IQ Equity Research warns of meager sales growth of just 1.7% in fiscal 2017 (ending in February), continued margin pressure and stiff competition. Capital IQ has a 12-month price target of $48 on BBBY stock, which its analysts note is a below-average 9.5 times its FY 2017 EPS estimate of $5.05.
Any weakness in consumer spending going forward is likely to hit Bed Bath & Beyond harder than some other retailers, and the chart supports a continued decline in BBBY stock.
The slide in shares was temporarily arrested with a triple-bottom at about $41 in January/February and a subsequent rally to over $52 in March. However, Wednesday’s 4.7% sell-off resulted in a break of the shallow support at $44.50.
BBBY stock is in an orderly but distinct downtrend. The next downside target is the triple-bottom at $41, but that support will probably not hold.
Sell BBBY stock short at $44 with a target of $36 for a potential 18% gain. A stop-loss order should be entered at $50. Also, keep in mind that you will be responsible for covering the recently instituted dividend payment of 12.5 cents per share if you hold BBBY stock short through the June 15 ex-dividend date.
