Bed Bath & Beyond (NASDAQ:BBBY) reported generally positive FQ4 results after the market closed. The beaten down retailer jumped 5% in after-hours trading. The key though is that the results only beat reduced expectations.
Regardless, the recent bounce in the stock again highlights what happens when the market gets too negative on a very profitable company. After hitting a low of $41.26 to start February, Bed Bath & Beyond closed at $51.00 in after-hours. For obvious reasons, investors shouldn't get too bullish about the stock though a couple of reasons exist for being more positive.
The retailer earned $1.84 per share for FQ4 easily beating analyst estimates, but Bed Bath & Beyond still failed to match the $1.85 expectations when the quarter started. The company though sounded a more bullish tone in the earnings release.
One small catalyst is that the retailer implemented a dividend. Instead of fully relying on flexible and sometimes erratic stock buybacks for capital returns, Bed Bath & Beyond started a quarterly dividend of $0.125 to provide shareholders with more consistent returns. The annual $0.50 dividend is good for a yield of roughly 1%.
Another good sign is that management picked back up the pace on the quarterly stock buybacks. One of the big negatives with Bed Bath & Beyond was the willingness of management to spend $1 billion during a couple of quarters alone when the stock was much higher to only greatly pull back the amounts spent each quarter when the stock collapsed in 2015.
For FQ4 that ended on February 27, Bed Bath & Beyond spent $327 million on repurchasing 7.0 million shares. The amount finally reversed a trend over the last several quarters of spending less on stock buybacks as the stock price slumped. Typically, an investor wants to see the company spend more on buybacks as the price drops.
BBBY data by YCharts
For the year, Bed Bath & Beyond spent roughly $1.1 billion on stock buybacks after spending an incredible $2.25 billion during the previous fiscal year when the stock price peaked around $80. For a perspective, the stock is only worth $8 billion now.
While the numbers highlight how the market got too negative on the stock, the question now is how to handle the stock going forward. The company forecast earnings roughly in the range of last year that hit $5.04 per share. The stock trades at roughly 10x that EPS guidance making for a relatively cheap stock. Though Bed Bath & Beyond doesn't really offer any big catalysts for the stock considering net income actually declined for the year and revenue growth is meager.
The key takeaway is that the stock is attractive at current levels where the company can utilize the recently approved $2.5 billion share buyback to repurchase shares and boost the EPS. Sometimes the market only needs positive vibes to send a very depressed stock higher.
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