Bed Bath & Beyond: Strong Results, But Little Upside Beyond These Levels

| About: Bed Bath (BBBY)
This article is now exclusive for PRO subscribers.

Shares of Bed Bath & Beyond (BBBY) rise 6% in after-hours trading as the company reported strong fourth quarter earnings.

Fourth Quarter Results

Bed Bath & Beyond has known a very strong end to its fiscal year of 2011. The company reported a net profit of $351 million, or $1.48 per share, up from $1.12 per share a year earlier. Revenues increased 9% on the year to $2.73 billion. The company beat its own estimates by a wide margin. In December the company expected earnings to come in at $1.28-$1.33 per share and revenue growth of 4-6%.


For 2012 the company expects earnings per share to increase by a high single-digit, or low double-digit margin. Analysts were expecting the company to guide for 14% profit growth for the year. For the first quarter of 2012 the company expects earnings to come in at $0.79-$0.83 in line with analysts expectations of $0.82


Factoring in the 6% rise in after-hours trading the market values the retailer at some $17 billion. The company holds about $1.8 billion in cash with no long term debt. As such, operating assets are valued at roughly $15 billion indicating that shares trade at 1.6 times 2012's annual revenues of $9.5 billion. Shares trade at an earnings multiple of 15 times based on 2011's earnings of $1 billion. Last year marked the fourth consecutive year of revenue growth and margin expansion with net margins coming in at 10.5%

Investment Thesis

Shares in Bed Bath & Beyond will hit new all time highs after this report in Thursday's session. The company has grown more lean and flexible after the recession which pays off as growth is recovering. Revenues have accelerated in recent years and net profit margins have expanded to record margins of 10.5% for the full year of 2011.

Shares are not obviously cheap at 15 times earnings after the company has seen aggressive revenue growth and margin expansion. The company expects further revenue and earnings growth for 2012 but shares have already seen too much appreciation to make this one a screaming buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.