Shares of Bed Bath & Beyond Inc. BBBY lost more than 10 percent Thursday morning after the company reported a top- and bottom-line third-quarter beat — but some analysts found plenty of reason to be concerned beyond the headline numbers.
Wedbush: Ability To Compete
Wedbush's Seth Basham maintains a Neutral rating on Bed Bath & Beyond's stock with a price target lowered from $25 to $23.
Bed Bath & Beyond's Q3 beat is overshadowed by the guidance for the full fiscal year, while December trends appear to have softened, Basham said in a research report.
BBBY deserves some praise for its "more aggressive actions" to offer competitive pricing, differentiated products, enhanced services and new store formats, Basham said. But it will likely take several years before any significant positive impact on profitability will be seen, the analyst said.
In the meantime, the company has sufficient cash flow, and a potential boost from tax reform will allow the retailer to compete more aggressively, Basham said. But since there's limited visibility to comp and margin stabilization, investors should stay on the sidelines, he said.
Credit Suisse: Three Reasons For Staying Neutral
Credit Suisse's Seth Sigman maintains a Neutral rating on Bed Bath & Beyond's stock with an unchanged $25 price target.
Sigman offered three main takeaways on BBBY:
Although the 0.3-percent comp decline did come in better than the 2-percent decline expected, the metric is below industry growth rates.
There's "no end in sight" to ongoing pressures on gross margin, which fell 174 basis points in the quarter.
While lower taxes could help fund strategic investments, there is unlikely to be any short-term EPS benefit, as management is investing for the long-term.
KeyBanc: 'We Remain Cautious'
KeyBanc Capital Markets' Bradley Thomas maintains an Underweight rating on Bed Bath & Beyond's stock with an unchanged $17 price target.
Investors have plenty of reasons to remain cautious despite Bed Bath & Beyond's top and bottom-line metrics coming in "less bad" than anticipated, Thomas said in a note.
While the company does have a long history of being "well-run" and a "quality retailer," the competitive landscape is intensifying and multiple factors that plagued the company over the past few years are likely to continue, if not get worse, the analyst said.
"We remain supportive of management's investments in the business and remain hopeful that it starts to benefit the top line," Thomas said.
"However, in the near term, margins remain under significant pressure, and we expect further deterioration in 2018. From a stock perspective, we remain cautious."
Loop Capital: No Reason To Become Constructive
Loop Capital Markets' Anthony Chukumba maintains a Hold on Bed Bath & Beyond with an unchanged $23 price target.
On one hand, Bed Bath & Beyond delivered a better-than-expected earnings report, but on the other, the company offered little reason to assume it can see a significant inflection point in the near-term, Chukumba said. No signs exist that management is working on a "silver bullet," so there is no reason to become constructive on the stock at this time, he said.
Bed Bath & Beyond's stock is trading at around 9.3x the analyst's 2018 EPS estimate, which represents a discount to its historical average but is also in-line with the average of secularly challenged specialty hardliner retailers.
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