Biomet and Bed Bath & Beyond

So Biomet (BMET) disappointed Wall Street yesterday. But due to its low price, the stock was upgraded today by Lehman Brothers. Well…now it’s back to almost exactly where it started. Glad that’s all cleared up.
The company missed earnings by two cents a share, and it lowered guidance for next quarter. That doesn’t please me but I realize that Biomet is in a tough environment. The industry is totally freaked about the threat of price cuts. Still, Biomet has held up well and the fundamentals are very strong.
The stock was too expensive at $50, and ideally I’d be a more enthusiastic buyer at a little lower price, but this is a solid stock. That’s why I’m keeping it on the Buy List for next year. Don’t let the market fool you.
Now we turn to Bed Bath & Beyond (BBBY). One day after I announce that it’s going on the new Buy List, the stock gets slammed by 10%. This is why I’m not a trader. I would be awful. But again, I’m not worried at all about BBBY. Actually, the lower price makes me like it even more. Here’s what the Wall Street Journal had to say today:

The company’s fiscal third-quarter earnings met targets, but sales missed analysts’ forecasts, as did the retailer’s profit outlook for the current quarter. Also, the recent quarter, which ended Nov. 26, marked only the second time in the last two years that Bed Bath & Beyond didn’t beat estimates.
In-line earnings are “not enough to sustain [the stock’s] rich valuation,” analysts at Goldman Sachs said, adding that the company’s forecast “seems light even by management’s conservative standards.” Analysts at Morgan Keegan cut their rating on Bed Bath stock to “underperform” from “market perform.”
Given the home-furnishings retailer’s habit of beating estimates regardless of the competitive landscape, it “was a bit of a surprise to hear management highlight the unusually promotional holiday season as a source of concern,” Merrill Lynch retail analyst Danielle Fox wrote, in a note to clients.

I think Bed Bath & Beyond is in a similar situation as Dell (DELL). The company pared its growth downward slightly, and investors are punishing it severely. This simply comes down to perspective. Let’s not forget that companies like Dell and Biomet are consistent performers. Dell’s stock recently dropped $13 after it cut its earnings guidance by two cents a share. That means that its marginal earnings were worth 650 times earnings. I’ll always take the opposite end of that trade.
Here’s what I wrote about Dell six weeks ago.

Posted by on December 22nd, 2005 at 3:08 pm


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