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Bed Bath & Beyond Before Earnings: Poor Performance But Safe

Bed Bath & Beyond (BBBY) is expected to reports earnings today after market close. Price movements remained choppy the last 6 months as BBBY topped consensus estimates in Q4 as well as introduced a new dividend payment program. BBBY also announced purchasing One Kings Lane for an undisclosed amount on 6/14.

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BBBY is down over 11% the last 6 months and comparable companies Williams Sonoma (WSM),Restoration Hardware (RH) and Mattress Firm (MFRM) also showed heavy losses. Pier 1 Imports (PIR) is the only comparable posting gains during the 6 month period.

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BBBY has posted negative bottom line growth the last three fiscal years and Wall Street projects this trend to continue for the following three.

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Wall Street also expects BBBY’s performance to be the worst among its peer group.

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BBBY’s EBITDA multiples are trading in the middle of the pack despite the company’s poor projected performance. Note PIR is still trading at a discount to the group after being the only stock to post positive gains within the last 6 months.

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In spite of the poor projected performance, the recent losses (shares down ~40% YoY) may not be justified.

Using a 4.75x EBITDA exit multiple and the above consensus projections in the DCF analysis below, a fair value of ~$50 is calculated. This represents a 15% margin of safety compared to current prices. Don’t expect shares to drop much further.

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