Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Bed Bath & Beyond Inc (BBBY) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Bed Bath & Beyond Inc. and subsidiaries is a retailer selling an assortment of domestics merchandise and home furnishings, which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in-store, online or through a mobile device. In addition, the Company operates Of a Kind, an e-commerce Website that features specially commissioned, limited edition items from emerging fashion and home designers. It also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. The Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. It sells an assortment of domestics merchandise and home furnishings.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$6,647,803,471||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.05||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||147.68%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||8.86||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.81||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.05||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.77||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||5.29%|
|MG Value based on 3% Growth||$71.24|
|MG Value based on 0% Growth||$41.76|
|Market Implied Growth Rate||0.18%|
|% of Intrinsic Value||46.44%|
Bed Bath & Beyond Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.63 in 2013 to an estimated $4.91 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.18% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
Bed Bath & Beyond Inc. performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$0.69|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||2/1/2016|
|Total Current Assets||$3,825,962,000|
|Total Current Liabilities||$1,867,225,000|
|Shares Outstanding (Diluted Average)||165,016,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$4.79|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$4.91|
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.