Quick Sneak Peak At Bed Bath's Earnings Preview: Like It Better In The High $50s Or $60 Range

Apr. 7.14 | About: Bed Bath (BBBY)

Summary

Estimates still being revised lower.

Couponing and resurgent JCP Home Business could hurt.

Cash-flow valuation not attractive.

Bed, Bath (NASDAQ:BBBY), one of our favorite home and houseware retailers during the housing bear market from 2007 through late 2011, is scheduled to report their fiscal q4 '14 earnings after the closing bell on Wednesday, April 9th, 2014.

Analyst consensus per Thomson Reuters is expecting $1.60 in earnings per share (EPS) on $3.23 on $3.23 billion in revenue for expected year-over-year (y/y) declines of -5% and -5% respectively.

Both the EPS and revenue estimates have been reduced since the last quarterly earnings release in late December, early January.

We currently hold no position in the stock and prefer to wait to own the stock until the shares trade back into the low $60s or high $50s in price.

The fiscal q3 release saw the stock fall from $80 to the low $60s on weaker comp's and guidance and slowing store traffic at the Bed, Bath stores.

At $69 per share, with estimates getting cut (and a lot of that is no doubt to the horrid January and February '14 weather and cold here in the Midwest) and at 12(x) price to cash-flow and 11(x) enterprise-value to free-flow, the valuation just isn't that compelling yet for us to take a big position in the stock.

That being said Williams-Sonoma (NYSE:WSM) just reported a decent quarter and although both are considered "home furnishing" stores, my impression is that their merchandise or SKU's can be pretty different.

BBBY's two big issues are discounting or couponing which is used to compete with Amazon (NASDAQ:AMZN), and a resurgent J.C. Penney (NYSE:JCP) "Home" division, which could be taking some foot traffic away from Bed, Bath.

Currently, I have no dog in this fight for clients, and thus just wanted to do the preview in case BBBY comes in to a price level that is technically appealing, but that would only be 15% - 20% lower in price.

BBBY had a tremendous run during the Housing Depression that lasted from 2006 - 2007 through 2011, and for us, amongst "housing exposure" for client portfolios, there is better growth and valuation stories than BBBY.

We are going to give it more time and we could very well miss a big move to the upside. This is a very well-managed retailer.

One thing that impressed us about the CostPlus acquisition, was that it filled the "buy vs. build" need for square footage.

Our internal model values BBBY in the low $70s as does Morningstar, so readers if you bought the stock today aren't getting much of a discount to "intrinsic value" at today's price.

That is how we are playing the retailer for clients. We are giving the stock more time. Great management team, great operators, just not cheap enough yet.

Disclosure: I am long AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.