Retail

Bed Bath & Beyond Inc Valuation – March 2018 $BBBY

Company Profile (obtained from Marketwatch): Bed Bath & Beyond, Inc. engages in the operation of retail stores specializes in domestic merchandise. It operates through the Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat!, Harmon or Harmon Face Values, buybuy BABY, and World Market, Cost Plus World Market or Cost Plus brands. Its products include domestic merchandise and home furnishings such as bed linens and related items, bath items, and kitchen textiles, kitchen and tabletop items, fine tabletop, basic house wares, general home furnishings, consumables, and certain juvenile products. The company was founded by Warren Eisenberg and Leonard Feinstein in 1971 and is headquartered in Union, NJ.

BBBY Chart

BBBY data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BBBY – March 2018

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 $3,217,205,868 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.67 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 78.89% Pass
6. Moderate PEmg Ratio PEmg < 20 5.36 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.13 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 1.67 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.94 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.19
MG Growth Estimate 0.01%
MG Value $35.70
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $60.76
MG Value based on 0% Growth $35.62
Market Implied Growth Rate -1.57%
Current Price $22.46
% of Intrinsic Value 62.92%

Bed Bath & Beyond Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 $4.19 in 2014 to an estimated $4.19 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.57% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Bed Bath & Beyond Inc. revealed the company was trading below its Graham Number of $34.59. The company pays a dividend of $0.38 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 5.36, which was below the industry average of 35.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.6.

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) -$3.60
Graham Number $34.59
PEmg 5.36
Current Ratio 1.67
PB Ratio 1.13
Current Dividend $0.38
Dividend Yield 1.67%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2017
Total Current Assets $3,940,491,000
Total Current Liabilities $2,361,067,000
Long-Term Debt $1,491,952,000
Total Assets $7,188,878,000
Intangible Assets $716,283,000
Total Liabilities $4,440,032,000
Shares Outstanding (Diluted Average) 138,790,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.86
Feb2017 $4.58
Feb2016 $5.10
Feb2015 $5.07
Feb2014 $4.79
Feb2013 $4.56
Feb2012 $4.06
Feb2011 $3.07
Feb2010 $2.30
Feb2009 $1.64
Feb2008 $2.10
Feb2007 $2.09
Feb2006 $1.92
Feb2005 $1.65
Feb2004 $1.31
Feb2003 $1.00
Feb2002 $0.74
Feb2001 $0.59
Feb2000 $0.46
Feb1999 $0.34
Feb1998 $0.26

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.19
Feb2017 $4.84
Feb2016 $4.89
Feb2015 $4.63
Feb2014 $4.19
Feb2013 $3.63
Feb2012 $2.99
Feb2011 $2.38
Feb2010 $2.03
Feb2009 $1.89
Feb2008 $1.95
Feb2007 $1.78
Feb2006 $1.52
Feb2005 $1.24
Feb2004 $0.96
Feb2003 $0.73
Feb2002 $0.56

Recommended Reading:

Other ModernGraham posts about the company

10 Companies Benjamin Graham Would Invest In Today – May 2016
10 Low PE Stocks for the Enterprising Investor – May 2016
10 Companies Benjamin Graham Would Invest In Today – February 2016
10 Low PE Stocks for the Enterprising Investor – February 2016
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – January 2016

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Disclaimer:

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.

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