Seeking Alpha
Long only, long-term horizon
Profile| Send Message|
( followers)  

Bed Bath & Beyond (NASDAQ:BBBY) dropped 8% after reporting "disappointing" earnings and lower than expected guidance yesterday (1/8/14). The EPS for their FY2014 third quarter came in at $1.12, 2 cents below analysts' estimates. Likely the more significant contributor to their after-hours drop was their guidance for next quarter, which also came in below what analysts were expecting. With the miss and the guidance, full year EPS for fiscal 2014 should come in about 20 cents below analysts' estimate of $5.01.

In a vacuum all that seems pretty negative and the stock price drop makes sense. However, when we remember that EPS for FY2013 was $4.56, we can see that BBBY will still be growing their EPS by over 5% this year. 5% EPS growth is not eye-popping, but it's nothing to sneeze at either. Considering their 5 year average EPS growth is north of 15%, 2013 certainly did leave something to be desired. It also is leaving savvy investors with a great opportunity.

If BBBY EPS comes in at $4.80 this year as is now expected, at the AH closing price of $73.00, that will put the P/E a touch above 15. There aren't many companies that can boast as impressive of an EPS growth streak as BBBY that trade at a P/E of 15. I know, I know, future growth is all the matters. The thing is, in my experience, past performance is THE best predictor of future success. You can look at analyst predictions, market growth models, global macro-economic headwinds, or tarot cards until your eyes bleed, but if you want to see success in action, just take a look at some of the companies that have been able to consistently grow earnings year in and year out for decades. Look at your Johnson and Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Colgate Palmolive (NYSE:CL) Proctor and Gamble (NYSE:PG), and Wal-Mart's (NYSE:WMT) of the world. I don't need to do hours of research to tell you that these guys, on average, are going to grow their EPS 4% - 6% every year and grow their dividends at a slightly higher rate than that. I know it because that's exactly what they've done for longer than I've been alive.

The big kicker, and what has gotten me so interested in BBBY despite the fact that it doesn't pay a dividend (I would definitely be classified as a DGI), is its impressive buyback program. BBBY had 260 million shares outstanding at the end of FY2010. Currently there are just under 215 million. In just over 4 years BBBY was able to buy back close to 20% of all outstanding shares! Let that sink in for a second. To use a much over-used analogy (if it's used so much, it's got to be good, right?), it's like taking a pie that you used to cut 5 ways, but now you only have to cut it 4. All the slices are going to be bigger. The best part is, not only are the slices getting bigger, the pie is getting bigger too. For the past decade, BBBY has been able to average net income growth of over 9%! With the pie getting bigger, and the number of people to share it with getting smaller, I certainly wouldn't mind owning a piece of BBBY.

Source: Bed Bath & Beyond This Earning Report