Bed Bath & Beyond Quarterly Valuation – November 2014 $BBBY
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 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor - October 2014. 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.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â FAIL
- 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 -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â FAIL
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $67.34 |
| MG Value | $166.31 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $66.54 |
| Value Based on 0% Growth | $39.00 |
| Market Implied Growth Rate | 3.09% |
| Net Current Asset Value (NCAV) | $2.01 |
| PEmg | 14.68 |
| Current Ratio | 2.23 |
| PB Ratio | 4.39 |
Balance Sheet – August 2014
| Current Assets | $4,480,000,000 |
| Current Liabilities | $2,007,000,000 |
| Total Debt | $1,500,000,000 |
| Total Assets | $7,034,000,000 |
| Intangible Assets | $486,300,000 |
| Total Liabilities | $4,095,000,000 |
| Outstanding Shares | 191,500,000 |
Earnings Per Share
| 2015 (estimate) | $4.96 |
| 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) | $4.59 |
| 2014 | $4.19 |
| 2013 | $3.63 |
| 2012 | $2.99 |
| 2011 | $2.38 |
| 2010 | $2.03 |
Dividend History
Bed Bath & Beyond does not pay a dividend.
Conclusion:
Bed Bath & Beyond is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s lack of dividend payments and high PB ratio, while the Enterprising Investor is only concerned with the lack of dividends.  As a result, Enterprising 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.38 in 2011 to an estimated $4.59 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 3.09% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
Be sure to check out previous ModernGraham valuations of Bed Bath & Beyond Inc. (BBBY)Â for a better 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 Inc. (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 Inc. (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.
