UPDATE: Credit Suisse Reiterates on Bed Bath & Beyond on Near-Term Transition Costs
In a report published Thursday, Credit Suisse analyst Gary Balter reiterated a Neutral rating on Bed Bath & Beyond (NASDAQ: BBBY), but lowered the price target from $78.00 to $70.00.
In the report, Credit Suisse noted, “Retail stocks correlate best with changes in return on invested capital. That historically had been the hallmark of many of our Hardline names, as they drove higher and higher productivity, while expanding operating margins and reducing working capital. However, the world has changed, and to deal with that change retailers, including Bed Bath & Beyond, one of the best managed chains in our coverage, need to invest to in e-commerce and alternative methods of distribution and advertising. What that implies is lower ROIC, at least for the interim period of investment, and hence a lower growth rate (as e-commerce penetration initially grows, returns will most likely fall).
"What it does not imply, as we discuss below, is that growth is over or that share will necessarily be lost. However, during that investment period, which we are in now, expect lower growth and a flattish stock price. We are lowering our target price to $70, reflecting 14x our updated 2014 EPS estimate of $5.02. We are also lowering our 2015 and 2016 EPS estimates to $5.50 and $6.02, respectively, reflecting continued margin pressure.”
Bed Bath & Beyond closed on Wednesday at $69.22.
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