Bed Bath & Beyond (BBBY) Selling BuyBuy Baby Risks 3 Downsides, Loop Capital Reiterates Sell

Loop Capital analyst Anthony Chukumba reiterated a Sell rating and $5.00 price target on Bed Bath & Beyond (NASDAQ: BBBY) after the Wall Street Journal reported that buybuy BABY has attracted interest from potential acquirors, including private equity firm Cerebus Capital Management and Tailwind Acquisition Corp. Bed Bath & Beyond (BBBY) had formed a committee to explore alternatives to unlock greater value from buybuy BABY as part of an agreement with 9.8% shareholder RC Ventures, including a potential spin-off or sale.

The analyst offered 3 reasons the sale is unlikely to increase the value of the company, stating "We are not at all surprised to hear buybuy BABY has attracted potential acquirors given the fact the chain is the sole national baby products retailer and is currently profitable on an EBITDA basis. That said, we believe buybuy BABY is likely to be valued at no more than 10x F2021 EBITDA (implying a valuation of ~$700M) given the significant secular headwinds the baby products retailing industry currently faces (most notably the declining US birth rate and women becoming mothers for the first time later in life) and the chain’s less than stellar profitability (i.e., Best Buy posted a far superior nearly 8% EBITDA margin in F2021 and currently trades for less than 5x EBITDA). We also believe a buybuy BABY sale would likely result in a hefty tax bill for BBBY and believe the net proceeds of a transaction would be applied toward repaying a portion of BBBY’s $1.2B in debt as opposed to benefiting equity holders. Finally, we note given selling BBBY’s “crown jewel” would result in a money losing remaining company that would still be saddled with a sizeable debt burden. Thus, we believe our Sell rating and $5 price target—which is already based on a sum-of-the-parts (SOTP) methodology valuing buybuy BABY at 10x EBITDA—remains appropriate."

For an analyst ratings summary and ratings history on Bed Bath & Beyond click here. For more ratings news on Bed Bath & Beyond click here.

Shares of Bed Bath & Beyond closed at $17.46 yesterday.

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