We have maintained our long-term Neutral recommendation on Bed Bath & Beyond Inc. (BBBY) with a target price of $62.00 per share. Moreover, the company has a Zacks #1 Rank, implying a short-term Strong Buy rating on the stock.
Bed Bath & Beyond is currently in the midst of a brisk store expansion program. The company is expecting to open a greater number of stores during fiscal year ending in February 2012. During fiscal year ended in February 2012, the company has opened 45 new stores, across all of its concepts.
In addition, the company purchased its merchandise from approximately 5,500 suppliers, primarily from domestic sources and balances from overseas with the company’s largest supplier accounting for approximately 5%. This reduces the company’s dependence on a single supplier while increasing its bargaining power.
Bed Bath & Beyond has reported nine consecutive quarters of improving trend, as the company’s earnings for first-quarter 2011 rose approximately 38% to $0.72 per share compared with the prior-year quarter’s earnings of $0.52, on the heels of high single-digit growth in sales and improved margins.
Bolstered by better-than-expected quarterly earnings, the company has raised its fiscal 2011 earnings guidance range. Bed Bath & Beyond now expects earnings per share for fiscal 2011 to increase by 15% to 20%, a rise of 5% from the earlier forecast.
Apart from this, the company has a robust debt-free balance sheet with solid cash position, which provides support in times of share repurchase, dividend payout and strategic acquisition. This offers Bed Bath the financial flexibility to drive future growth.
However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
Above all, Bed Bath & Beyond operates in a highly fragmented industry and faces competition from larger retailers, such as Target Corporation (TGT) and Wal-Mart Stores Inc. (WMT) as well as from departmental and specialty stores. Being in such a high competitive industry, Bed Bath may find it difficult to execute and implement new business strategies, which in turn, will impact its operations adversely.
