Looking Ahead to Bed Bath & Beyond’s Earnings

Next week, Bed Bath & Beyond (BBBY) will report its fiscal Q2 earnings. I like this company a lot and I’ve long admired their highly efficient operations.
When the last earnings report came out in June, BBBY said it expects earnings for Q2 to range between 59 cents and 63 cents per share. The Street was expecting 63 cents per share so this announcement was a disappointment.
The shares fell 5.6% the next day and continued to fall. For most of July and August, the stock bounced around in the upper-$30s. I had said after the earnings report that “if you can get this stock below $40, you’re getting a good deal.”
For the moment, it looks like I was right. With the beginning of September, the stock came back to life. BBBY smashed through $40 and even broke $42 yesterday.
I think the investing community mistakenly believes that BBBY is a housing stock. Yes, it’s impacted by housing but don’t get the idea that buying BBBY is anything like buying Lennar (LEN). I like to find situations where most people think the situation is X, but it’s really only partially X.
I wouldn’t be surprised to see BBBY smash earnings next week. The stock could even make as much as 70 cents per share (look at me being all bold). The big positive is that their margins are looking much better. The last report showed that net margins have improved for five quarters in a row.
Put it this way: When your margins improve from 6% to 8%, which is the case for BBBY, a 12% rise in sales translates to a 50% increase in profits. And that’s a good thing.
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My only warning is that if you don’t already own the stock, I would be leery of starting a position over $40 per share. The company will probably earn about $2.70 to $2.75 per share for this year, give or take. That means $40 is a reasonable price but it’s not what I would call “a steal.”

Posted by on September 15th, 2010 at 2:35 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.