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Bed Bath & Beyond Upgraded, But Not On Fundamentals

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Bed Bath & Beyond Upgraded, But Not On Fundamentals

Many retail investors are certainly feeling the pain this week, but that doesn't mean Wall Street analysts are issuing downgrades across the board.

Loop Capital Markets' Anthony Chukumba upgraded Bed Bath & Beyond Inc. (NASDAQ: BBBY)'s rating from Sell to Hold but with an unchanged $35 price target. The analyst's upgrade isn't based on the company's fundamentals and could come as a surprise to some based on the industry-wide woes.

In fact, the analyst is expecting "tepid" top-line growth in the coming year, along with a profitability margin deterioration. However, the stock's 10-percent decline since the start of 2017 and 16 percent loss over the past year implies a valuation currently "in line with our relatively bearish fundamental outlook."

Chukumba expanded, noting shares are trading at 8.5x his 2017 diluted earnings per share estimate, which represent a discount to its historical average, yet also in line with other struggling retailers.

Bullish Outlook May Be Possible

Many investors may return to the retail sector if prospects improve. After all, the retail sector as a whole is experiencing a growth cycle dating back to 2008.

Some retailers are divesting non-core assets to better focus on their core competencies. Doing so could also unlock trapped value for investors and Bed Bath & Beyond does have its share of non-core assets.

Chukumba thinks at the very least the company can see some improvements if it were to integrate its various non-core stores and concepts with its core Bed Bath & Beyond store.

But for the time being, the analyst is sticking with a Neutral rating based as the stock's current valuation doesn't justify a Sell rating and much needs to be done to become incrementally more positive.

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Latest Ratings for BBBY

DateFirmActionFromTo
Apr 2020JP MorganMaintainsNeutral
Apr 2020UBSMaintainsNeutral
Apr 2020CFRAMaintainsSell

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Posted-In: Anthony Chukumba Loop Capital Markets retail retailersAnalyst Color Upgrades Analyst Ratings Best of Benzinga

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