Is Bed Bath & Beyond Undervalued?

Yes, Bed Bath & Beyond (NASDAQ: BBBY) looks slightly undervalued. As per Trefis, the price estimate of Bed Bath & Beyond’s Stock is $14, which is about 4% above the closing price on 13th November, 2019.

Bed Bath & Beyond Inc. is an omnichannel retailer offering high quality and differentiated products, services and solutions for the home, and heart-felt life events. The Company sells a wide assortment of domestic merchandise and home furnishings and operates under the names Bed Bath & Beyond, Christmas Tree Shops, Harmon Face Values, buybuy BABY, and World Market Stores.

Trefis has a price estimate of $14 for Bed Bath & Beyond’s stock. We have detailed the key components of Bed Bath & Beyond’s Valuation in an interactive dashboard, Bed Bath & Beyond’s (BBBY) Valuation: Cheap or Expensive? along with our forecast for the full year 2019.

#1 Estimating Bed Bath & Beyond’s Revenues:

• Total Revenue has fallen primarily due to the fall seen in the revenue from Bed Bath & Beyond stores. Total Revenue fell from $12.2 billion in FY 2016 to $12 billion in FY 2018. Trefis estimates revenue to fall to around $11.6 billion for FY 2019 (ended February 2020).
• Revenue from Bed Bath & Beyond Stores has fallen primarily due to a fall in comparable sales reduction in stores. Revenue fell from $8.3 billion in 2016 to $7.9 billion in 2018. Trefis estimates revenue of around $7.6 billion for FY 2019 (ended February 2020).
• Revenue from Christmas Tree Shops has increased slightly due to a small increase in stores offset by a decrease in average revenue per store. Revenue increased from $1.56 billion in 2016 to $1.59 billion in 2018. Trefis estimates revenue of around $1.53 billion for FY 2019 (ended February 2020).
• Revenue from Harmon Stores has increased slightly due to a small increase in stores offset by a decrease in average revenue per store. Revenue increased from $105.8 million in 2016 to $110.7 million in 2018. Trefis estimates revenue of around $105.2 million for FY 2019 (ended February 2020).
• Revenue from buybuy Baby Stores has increased  due to an increase in stores slightly offset by a decrease in average revenue per store. Revenue increased from $1.22 billion in 2016 to $1.34 billion in 2018. Trefis estimates revenue of around $1.35 billion for FY 2019 (ended February 2020).
• Revenue from World Market Stores has fallen slightly due to a small decrease in average revenue per store. Revenue decreased from $1.08 billion in 2016 to $1.06 billion in 2018. Trefis estimates revenue of around $1.06 billion for FY 2019 (ended February 2020).

#2 Estimating Bed Bath & Beyond’s Net Income:

• There was a Net Loss in FY 2018 primarily due to the goodwill impairment of $509 million in Q4 of FY 2018. In Q1 2019  and Q2 2019 we saw a goodwill impairment for $401 million and $28 million respectively. We expect Net Income to be around $200 million in FY 2019 (ended February 2020).

#3 Deriving Bed Bath & Beyond’s EPS Figure:

• Bed Bath & Beyond has regularly invested in share repurchases to boost shareholder returns. Shares outstanding are likely to be around 123.3 million at the end of FY 2019.
• This would enable it to report an EPS figure of $1.62 in FY 2019 (ended February 2020).

#4 Price Estimate by Trefis:

As per Bed Bath & Beyond’s Valuation by Trefis, we have a price estimate of $14 per share. The stock price estimate is arrived using the discounted cash flow valuation technique, which you can find in the detailed financial model here. Based on a projected EPS of $1.62/share and stock price estimate of $14/share, Bed Bath & Beyond’s implied price-to-earnings (P/E) multiple stands at 8.7x. Its P/E multiple is lower than the multiples of its near competitors i.e. Best Buy (13x) and Target (18x).

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