Bed Bath & Beyond Quarterly Valuation – August 2014 $BBBY

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 the 5 Undervalued Companies for the Defensive Investor with High Dividend Yields.  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:

Recent Price $61.61
MG Value $162.88
MG Opinion Undervalued
Value Based on 3% Growth $66.00
Value Based on 0% Growth $38.69
Market Implied Growth Rate 2.52%
Net Current Asset Value (NCAV) $6.77
PEmg 13.53
Current Ratio 2.03
PB Ratio 3.19

Balance Sheet – 5/31/2014

Current Assets $3,835,200,000
Current Liabilities $1,887,600,000
Total Debt $0
Total Assets $6,362,300,000
Intangible Assets $486,300,000
Total Liabilities $2,468,000,000
Outstanding Shares 201,950,000

Earnings Per Share

2015 (estimate) $4.85
2014 $4.79
2013 $4.56
2012 $4.06
2011 $3.07
2010 $2.30
2009 $1.64
2008 $2.10
2007 $2.09
2006 $1.92
2005 $1.65

Earnings Per Share – ModernGraham

2015 (estimate) $4.55
2014 $4.19
2013 $3.63
2012 $2.99
2011 $2.38
2010 $2.03

Conclusion:

Bed Bath & Beyond qualifies for either the Defensive Investor or the Enterprising Investor.  The only issue 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 comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.38 in 2011 to an estimated $4.55 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.52% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.

Be sure to check out the previous ModernGraham valuations of Bed Bath & Beyond (BBBY) for more perspective!

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.

Disclaimer:  The author did not hold a position in Bed Bath & Beyond (BBBY) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


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Comments

One response to “Bed Bath & Beyond Quarterly Valuation – August 2014 $BBBY”

  1. Richard Benson Avatar

    I wonder how they defend their self for being the low distributor of dividends ..

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