Raymond James Downgrades Bed Bath & Beyond (BBBY) Two-Notches to Market Perform; Recent Performance Related to Short Squeeze, Not Fundamentals
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(Updated - January 26, 2021 7:13 AM EST)
Raymond James analyst Bobby Griffin downgraded Bed Bath & Beyond (NASDAQ: BBBY) from Strong Buy to Market Perform.
"We are downgrading BBBY to a Market Perform rating from a Strong Buy rating, as BBBY is now trading above our prior target, and we can not justify moving our target higher to maintain our Strong Buy rating (15% required upside)," Griffin commented.
Griffin said the downgrade is not a reflection on Bed Bath & Beyond's turnaround potential and believes that the new management team understands the core issues.
"That said, BBBY’s recent performance over the past few weeks stretches its valuation and creates a far more balanced risk/reward set up over the next few months, in our view," the analyst commented. "Specifically, BBBY is up ~73% through the first ~15 trading days of 2021, without any meaningful change in the retail environment or fundamentals of the business (versus a month ago). Yes, results have showed progress in comps and gross margin, but BBBY still remains a “prove me” story, especially as the industry starts to comp against elevated home related spending due to COVID-19 in a few months. With the environment roughly the same, the recent stock surge is more a result of a short squeeze against highly shorted retail names (see GME and AMC). While predicting when this activity will end is challenging, we think it is prudent to take a breather on our positive rating as BBBY is now trading at ~21.2x our FY21 adj. EPS estimate of $1.45 (~25x the consensus $1.25)."
Shares of Bed Bath & Beyond closed at $30.68 yesterday.
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