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Bed Bath & Beyond (BBBY) Downgraded at Two Firms Following Surge on 'Wallstreetbets' Squeeze

January 26, 2021 8:19 AM EST
Get Alerts BBBY Hot Sheet
Price: $0.08 --0%

Rating Summary:
    4 Buy, 17 Hold, 14 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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Bed Bath & Beyond (NASDAQ: BBBY) saw its stock getting downgraded by two Wall Street firms Tuesday after soaring nearly 73% higher since the beginning of the year.

Retail investors aggressively bought BBBY stock on Monday with shares trading about 60% higher at one moment. Gains evaporated quickly for BBBY to close 1.56% higher on the day.

“What we are seeing is an interesting clash between retail investors and the big institutions,” said Delano Saporu, founder of New Street Advisors Group. “The cheerleading and strong emotions from both sides is creating an environment of emotion-based investing.”

In a similar manner, CNBC’s Jim Cramer took note of BBBY's volatile price action Monday. Cramer was referring to a subforum of Reddit “wallstreetbets” where retailer traders aggressively promote certain stocks.

"It's the 'wallstreetbets' people.′ And they have ganged up, arguably allowed by free speech purposes, to center on a few stocks. I’ve never seen guns like this. They can break shorts,” he said.

Following a surge in the price action, UBS analyst Michael Lasser downgraded the stock to a “Sell”, citing near-term downside risk.

“With BBBY shares up 73% YTD, our call is to take profits. The recent move has tilted the risk-reward to the downside. The shares will eventually face stiff resistance from 1) A turnaround that probably won't deliver linear progress. The challenges at BBBY are deep & will take time to fix. We believe the typical BBBY customer visits less than 5x per year. Thus, the retailer doesn't have the frequency to showcase changes it might make. Plus, it runs the risk that other retailers continue to siphon off these visits. 2) The headwind to the HF sector from demand pull forward,” the analyst wrote in today’s note.

“Roughly 2/3 of BBBY's sales are from items such as kitchen & tabletop, basic housewares and general home furnishings. Industry-wide sales of these goods will face pressure as consumers shift spending to areas like food away from home & travel; and 3) The valuation, w. BBBY trading at 25x cons.”

The price target on BBBY remains at $20.00 as Lasser adds that the current market valuation “simply doesn't account for the risks.”

Similarly, Raymond James analyst Bobby Griffin downgraded the stock to “Market Perform” from a “Strong Buy” rating after the stock price exceeded the firm’s price target.

“We can not justify moving our target higher to maintain our Strong Buy rating (15% required upside). To be clear, our change in opinion is not a reflection on Bed Bath & Beyond's turnaround potential. We continue to believe that the new management team understands the core issues within the business and has already started to show progress in recent results (gross margin, comps and asset sales),” Griffin wrote in today’s note.

The recent stock performance makes BBBY’s valuation “stretched”, which leads to a more balanced risk/reward position.

“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,” Griffin adds.



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