BBBY missed earnings after the close last night. Stock is down 6% this morning. Comparable sales are stable to positive and the net sales decrease is distorted by the 53rd week in the comparable prior year's quarter.
With a generous Adjusted Free Cashflow Yield (EV based) of 9.1%, and an aggressive buyback programme set to continue over the next 12 months, which should equate to 9% of the current share count, the stock should outperform the market.
Going forward the stock should be able to generate 5.7% earnings growth from reinvested earnings and 5.1% earnings growth from buybacks net of stock compensation dilutions. There is a certain cyclicality to this business and therefore slightly weakening EBITDA margins trends due to aggressive promotional tactics shouldn't necessarily be a longer term reason not to hold this stock. We don't believe that a 23% discount to the market is justified. We are therefore going long the stock v. a market short.
Disclosure: I am long BBBY.