Bed Bath & Beyond Inc. Analysis – August 2015 Update $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 10 Most Undervalued Companies for the Defensive Investor – August 2015.  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. is a retailer, which operates under the names Bed Bath & Beyond (BBB), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, CTS), Harmon or Harmon Face Values (collectively, Harmon), buybuy BABY (Baby) and World Market, Cost Plus World Market or Cost Plus (collectively, Cost Plus World Market). The Company operates in two segments: North American Retail and Institutional Sales. The Company’s customers can purchase products from the Company either in-store, online or through a mobile device. The Company 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. Additionally, the Company is a partner in a joint venture which operates five retail stores in Mexico under the name Bed Bath & Beyond. The Company sells a range of domestics merchandise and home furnishings.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of BBBY – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
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 Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
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 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 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

EPSmg 4.91
MG Growth Estimate 9.60%
MG Value $135.91
Opinion Undervalued
MG Value based on 3% Growth $71.13
MG Value based on 0% Growth $41.70
Market Implied Growth Rate 2.10%
Current Price $62.29
% of Intrinsic Value 45.83%

Bed Bath & Beyond Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, lack of dividends, and the high PB ratio.  The Enterprising Investor is only initially concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.99 in 2012 to an estimated $4.91 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.1% 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.

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.

Stage 3: Information for Further Research

BBBY charts August 2015

Net Current Asset Value (NCAV) -$0.68
PEmg 12.69
Current Ratio 1.99
PB Ratio 4.18
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Total Current Assets $3,930,701,000
Total Current Liabilities $1,973,153,000
Long-Term Debt $1,500,000,000
Total Assets $6,599,077,000
Intangible Assets $486,279,000
Total Liabilities $4,046,881,000
Shares Outstanding (Diluted Average) 171,133,000

Earnings Per Share History

Next Fiscal Year Estimate $5.15
Feb15 $5.07
Feb14 $4.79
Feb13 $4.56
Feb12 $4.06
Feb11 $3.07
Feb10 $2.30
Feb09 $1.64
Feb08 $2.10
Feb07 $2.09
Feb06 $1.92
Feb05 $1.65
Feb04 $1.31
Feb03 $1.00
Feb02 $0.74
Feb01 $0.59
Feb00 $0.46
Feb99 $0.34
Feb98 $0.26
Feb97 $0.20
Feb96 $0.15

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.91
Feb15 $4.63
Feb14 $4.19
Feb13 $3.63
Feb12 $2.99
Feb11 $2.38
Feb10 $2.03
Feb09 $1.89
Feb08 $1.95
Feb07 $1.78
Feb06 $1.52
Feb05 $1.24
Feb04 $0.96
Feb03 $0.73
Feb02 $0.56
Feb01 $0.43
Feb00 $0.33

Recommended Reading:

Other ModernGraham posts about the company

The 12 Best Stocks For Value Investors This Week – 5/30/15
Bed Bath & Beyond Inc. Quarterly Valuation – May 2015 $BBBY
27 Companies in the Spotlight This Week – 2/14/15
Bed Bath & Beyond Inc. Quarterly Valuation – February 2015 $BBBY
Bed Bath & Beyond Quarterly Valuation – November 2014 $BBBY

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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.  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.

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