Bed Bath & Beyond (BBBY) Quarterly Valuation – May 2014

500px-Bedbath&beyond.svgBenjamin 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 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  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 specific look at how Bed Bath & Beyond (BBBY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Bed Bath & Beyond Inc. is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon), buybuy BABY and World Market or Cost Plus World Market (World Market). In addition, it is a partner in a joint venture, which operates three stores in the Mexico City market under the name Bed Bath & Beyond. The Company sells a range of domestics merchandise and home furnishings. Domestics merchandise includes categories, such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories, such as kitchen and tabletop items, fine tabletop, basic housewares and general home. During fiscal year ended March 2, 2013 (fiscal 2012), the Company opened a total of 38 stores, including 12 BBB stores throughout the United States and Canada, five CTS stores, one Harmon store and 18 buybuy BABY stores, and six World Market stores throughout the United States and closed one BBB store.

BBBY Chart

BBBY data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $167.56
MG Opinion Undervalued
Value Based on 3% Growth $66.73
Value Based on 0% Growth $39.12
Market Implied Growth Rate 2.50%
Net Current Asset Value (NCAV) $6.57
PEmg 13.50
Current Ratio 2.07
PB Ratio 3.36

Balance Sheet – 3/1/2014

Current Assets $3,814,600,000
Current Liabilities $1,840,000,000
Total Debt $0
Total Assets $6,356,000,000
Intangible Assets $486,300,000
Total Liabilities $2,414,700,000
Outstanding Shares 212,930,000

Earnings Per Share

2014 (estimate) $5.00
2013 $4.79
2012 $4.56
2011 $4.06
2010 $3.07
2009 $2.30
2008 $1.64
2007 $2.10
2006 $2.09
2005 $1.92
2004 $1.65

Earnings Per Share – ModernGraham

2014 (estimate) $4.60
2013 $4.19
2012 $3.63
2011 $2.99
2010 $2.38
2009 $2.03


Bed Bath & Beyond is a great company for Defensive Investors and Enterprising Investors to consider.  The only concern for either investor type is the lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities such as through a review of 5 Low PEmg Companies for the Defensive Investor and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $2.38 in 2010 to an estimated $4.60 for 2014.  This demonstrated level of growth surpasses the market’s implied estimate of 2.5% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Bed Bath & Beyond (BBBY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a long position in Bed Bath & Beyond (BBBY) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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