Bed Bath & Beyond Earnings Redux: Like The Retailer's Cash Flow, Still Waiting On Stock

| About: Bed Bath (BBBY)


Big share repo in Q4 allowed BBBY to meet EPS estimate.

Margins narrowed again.

BBBY generating a lot of cash.

Bed Bath & Beyond (NASDAQ:BBBY) reported their Q4 '14 financial results after the bell on Wednesday, April 9th.

Revenues missed by 1% although EPS was in line, as BBBY printed $3.2 bl and $1.60 in EPS for actual y/y growth of -6% and -5%, respectively.

Comps rose slightly sequentially to 1.7% from 1.3, versus last year's Q4 '13 comp of 2.5%.

Inventories increased 5% y/y as revenues fell 6%.

In Q4 '14, BBBY spent $532 and repo'ed 7.5 million or about 2% of the outstanding shares.

What is interesting is, if you actually do the math between the fiscal 3rd and 4th quarter shares outstanding, the actual share count reduction was a little over 4 million, versus the 7.5 million management said were repo'ed in the press release. The discrepancy is usually attributable to insider selling or perhaps option exercises and then purchases and subsequent sales as part of the incentive compensation plan.

Either way, the press release said 7.5 million shares were repo'ed, but "fully diluted share outstanding" only declined by 4.2 million, between Q3 '14 and Q4 '14.

We don't want to take up a lot of readers' time with a recap of BBBY's entire earnings report.

EPS and revenue estimates keep coming down after the report as management guided to a weaker Q1 '15 and full-year 2015.

One aspect we do like to BBBY is that the stock is currently sporting an 8% free-cash-flow yield, and the 9(x) price to cash-flow valuation as the stock continues to come in.

The next three years' EPS and revenue growth per Thomson Reuters is expected to average 7% and 4%, respectively. The current price to sales is just a tad over 1(x), so there are cheaper retailers out there.

Technically the stock hit a 1-year low on February 1 '14 of $62.12.

Here was our earnings preview last week, which said we would wait for a re-test of the February '14 lows to see how the stock acted.

My feeling is the company is maturing, and with greater pressure in the space from Amazon and the resurgent JCP, growth has slowed and BBBY might want to start paying a dividend.

Our internal model values BBBY at $70 while Morningstar has maintained its estimate of perceived intrinsic value at $73. The question investors have to ask is, if the stock trades to $60-$62, is there enough of a discount to intrinsic value to warrant a sizable position.

We think that would require a $50 share price, and the fact is the stock may never get there.

This is always the tough part of investing.

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.