Seemingly unrelated Bed Bath & Beyond Inc. BBBY and SanDisk Corporation SNDK actually share a commonality.
Fundstrat Global Advisors recently selected them both as large cap, high liquidity Snoopys ideas and added them to the Fundstrat Money List.
Within the Russell 1000 members of the firm’s large-cap universe, the cheapest decile of EV/LTM EBITDA comprises Snoopys stocks. Other reasons for the choice included stock price history, valuation, fundamentals and the consensus opinion about them.
Bed Bath & Beyond: Snoopys And Wisdom of the Crowd
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$9.6 billion market cap
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$126 million in daily traded value
Below are Fundstrat’s three reasons to invest in Bed Bath and Beyond:
1. It is not a particularly liked stock, due to its “price competition, margin pressure from online shipping costs, a slow digital strategy and poor store comps.” In addition, it is on the firm’s Wisdom of the Crowd Theme.
Related Link: Bed Bath & Beyond: Morgan Stanley Cuts Targets, Stays Underweight
2. However, the analysts believe the over 25 percent omnichannel/online comps are getting to scale at last. As such, they are able to offset flat or negative comps in stores. In addition, they note that the strong dollar may alleviate some margin pressure on COGS. Moreover, they stated, “The discretionary product mix may benefit from consumer spending, particularly as household formation drives housewares spending.”
3. The company’s cash flows look quite strong, and a large share repurchase program already in place should provide further support for the stock. Given that most of the bad news seems to be already priced in, modestly positive news could drive the stock to Outperform. Moreover, the firm believes “the 5.7x FY16E EV/EBITDA multiple offers downside protection.”
SanDisk Corp: Snoopys Meets Liquid Book
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$11.6 billion market cap
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$223 million in daily traded value
Fundstrat’s three reasons to invest in SanDisk are:
1. The stock has been struggling and has already lost 40 percent year-to-date, partially on the back of the loss of one of its main SSD customer and poor execution in the enterprise segment. As a consequence, cost declines could not keep up with ASP/gigabyte declines.
2. Over the next year, year-and-a-half, SanDisk should see evidence of its new products “gaining acceptance in hyperscale enterprise applications. Commercial volume shipments of the new 256 gb 48-layer X3 NAND chip should also allay margin and cost fears, leading to both margin and multiple expansion, particularly if some of the competitors struggle with the transition,” the report assured.
3. Trading at only 12.7x FY16E EPS and 5.9x FY16 EV/ EBITDA, the stock looks attractively valued. The analysts commented, “The strong process migration expertise should help drive both earnings and multiple upside into 2017. Successful competitive moves that lead to a further oversupply and accelerating ASP declines ahead of cost reductions pose a risk to the thesis.” However, the appealing valuation coupled with the company’s “longstanding gross margin leadership should somewhat insulate investors against the effects of excess NAND capacity.”
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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