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Bed Bath & Beyond’s Baby Business Isn’t Worth ‘Multiple’ Billion, Analysts Say, Contradicting Ryan Cohen’s Letter

Bed Bath & Beyond's Baby Business Isn't Worth 'Multiple' Billion, Analysts Say, Contradicting Ryan Cohen's Letter

Wedbush analysts contradicted RC Ventures’ assessment of the value of Bed Bath & Beyond Inc.’s Baby business in a Monday note, saying Buybuybaby could be worth more than $1 billion, but not the ” multiple” billions claimed by Ryan Cohen in a letter. sent to the homeware retailer.

Bed bath and beyond BBBY,
+27.62%
shares soared 29% in Monday trading, but pared earlier gains of 86%, after The Wall Street Journal reported on the participation of RC Ventures in the company and linked to the letter dated March 6. In the letter, Cohen pleads for Bed Bath & Beyond to refocus its efforts and move away from a “heavyweight” growth strategy, and explore strategic alternatives for Buybuybaby.

“Another avenue that can streamline Bed Bath’s strategy and unlock the value trapped in the company’s underperforming stocks is through a sale or spin-off of the BABY banner. Given that BABY is expected to hit $1.5 billion in sales in fiscal 2023 with a double-digit growth profile and digital penetration of at least 50%, we think it’s likely much more valuable. than the entire market capitalization of the company today,” the letter reads. .

“We believe that under the right circumstances, BABY could be valued on a revenue multiple, like other e-commerce focused retailers, and justify a multi-billion dollar valuation.”

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Wedbush agrees that Bed Bath & Beyond could reduce its scope for a turnaround, but disagrees on the value of Baby’s business. Wedbush includes in its current valuation the cost of running Buybuybaby as a stand-alone business.

“We see a valuation range for Baby of $900m (9x $100m EBITDA incl. overhead) to $1.7bn (13x $130m EBITDA incl. overhead) – that’s a wide range, but nowhere near the $2 billion suggested by Mr. Cohen,” Wedbush said.

Analysts fear that the Bed Bath & Beyond banner could be valued at $800 million if Buybuybaby is at the high end of that range, which means Bed Bath & Beyond is losing market share.

“Supply chain issues have compounded the disruption of merchandising changes in recent quarters, but it’s not clear the company’s value proposition is resonating,” Wedbush said.

“While shares of Bed Bath & Beyond may rise on the back of new activist involvement and high short interest, we remain on the sidelines with no further visibility on the sustainability of market share for Bed Bath’s core business. Bed Bath.”

Wedbush notes that Bed Bath & Beyond is equity neutral with a 12-month price target of $14.

KeyBanc analysts were also wary of Cohen’s valuation and were actually bearish on shares of Bed Bath & Beyond.

“While RC Ventures’ stance and Buybuybaby’s valuation could help support stocks, we remind investors that many aspects of Sunday’s letter echo those demanded by activists in 2019, which have already resulted in a turnover. of the majority of the board of directors and the management team as well as the disposal of numerous assets,” KeyBanc Capital Markets wrote in a note.

KeyBanc rates Bed Bath & Beyond shares underweight with a price target of $10.

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Wells Fargo was also bearish on the retailer: “In our view, the Bed Bath & Beyond asset remains structurally disadvantaged, fundamentals are weakening and the activist narrative is largely driven by a takeaway that we view as too complicated and unlikely.”

Wells Fargo rates Bed Bath & Beyond shares underweight, but raised its price target to $20 from $12.

Bed Bath & Beyond confirmed on Monday that it had received the letter from RC Ventures, indicating that 2021 was the first year of a multi-year transformation plan.

“Bed Bath & Beyond’s Board of Directors and management team maintain a constant dialogue with our shareholders and, although we have not had any prior contact with RC Ventures, we will carefully review their letter and hope to engage in constructively around the ideas they have put forward,” the company said in a statement.

Meanwhile, the stock’s earnings may reflect the fact that it has reached meme stock status. In January, the company said supply chain disruptions and labor shortages had put such pressure on the company that it was struggling to get traffic-driving flyers printed.

A number of other retailers have also faced militant activity recently, including Kohl’s Corp. KSS,
-10.67%
and Macy’s Inc. M,
-10.24%

Bed Bath & Beyond stock has fallen 25.7% over the past year, while the S&P 500 SPX index,
-2.18%
gained 10.3%.