Bank of America Thinks Amazon Will Hurt Bed Bath & Beyond More on Margins Than Sales

Bed Bath & Beyond BBBY had been rebounding since a post earnings selloff, but a Bank of America downgrade may end the trend. Bed Bath & Beyond was cut from neutral to underperform and the price target was dropped from $63 to $51.

One of the biggest threats Bed Bath & Beyond faces is competition from online giants. Analyst Denise Chai writes about how online competitors will have more of a threat to margins than sales.

Related: Bank of America, Morgan Stanley Comment On Bed Bath & Beyond's Earnings Miss

“In our view, BBBY made a critical mistake in waiting until 2012 to make significant investments in its online platform. Not only has this allowed rivals to gain a meaningful lead in terms of scale and customer loyalty, but it leaves BBBY in the unenviable position of investment catchup in a prolonged period of soft comps. Going forward, we believe BBBY will continue to face a vicious cycle of limited online growth, muted comps, forced reinvestment, and deleverage.”

The $51 price target is based on 10 times blended 2014 and 2015 earnings while the previous price target was based on 12 times. Chai notes that this multiple is the second lowest of his coverage group, only behind Staples.

Shares of Bed Bath & Beyond were last trading at $58.95, down 0.67 percent on the downgrade.