Why This Bed Bath & Beyond Analyst Thinks Ryan Cohen's Plan May Not Work: 'Pivot In Strategy Won't Fix This Business'

Bed Bath & Beyond Inc. BBBY shares closed higher by 34% Monday after GameStop Corp. GME chairman Ryan Cohen picked up a 9.8% stake in the retailer.

An analyst at BofA Securities, however, doesn't share the enthusiasm of investors, and here's why.

The Bed Bath & Beyond Analyst: Jason Haas maintained an Underperform rating and the $9.50 price target for Bed Bath & Beyond.

The Bed Bath & Beyond Thesis: Cohen, while buying into Bed Bath & Beyond, has called for changes in the retailer's turnaround strategy and exploration of strategic options. The strategic options suggested include separating Buy Buy Baby and a full sale of the company.

The analyst, meanwhile, called attention to the fact that current leadership was put in place after another activist group took a stake in the company in 2019. This team has implemented a turnaround strategy that included a sale-and-leaseback of real state, sale of a number of ancillary concepts and the repurchase of about 40% of the outstanding shares, the analyst noted.

Related Link: Chewy, GameStop, Bed Bath & Beyond: How Have Ryan Cohen's E-Commerce Bets Performed?

Cohen has called for a more focused reinvestment in supply chain, technology, stores and other infrastructure, Haas said. The activist investor has also suggested prioritizing the retailer's core assortment and the removal of guidance.

Years of underperformance and underinvestment have left the company less equipped to keep pace with the changes in the industry, the analyst said.

"A pivot in strategy won't fix this business," Haas said.

Also, Buy Buy Baby business may not be worth the "several billion dollars" Cohen is estimating, the analyst said. The estimate has not taken into account "dis-synergies, lack of store growth and the tax impact of a sale," he added.

The analyst sees the baby category experiencing continued declines due to falling birth rates and competition from online retailers such as Amazon, Inc. AMZN. The banner is also well-integrated with the parent store.

BBBY Price Action: At press time, Bed Bath & Beyond shares were up 6% to $23.01.