Bed Bath & Beyond Latches Onto 'Lifeline' But Retailer Is Still Knocking At Bankruptcy's Door: Why This Analyst Says Shares Are Worth A Quarter

Bed Bath & Beyond Inc BBBY shares were on a roller-coaster ride for the past year amid bankruptcy concerns, but the joyride was largely downhill.

Against all odds, Bed Bath managed to secure financing when shares climbed the tracks again last week, but Wedbush said the excitement won't last long.

What To Know: Wedbush analyst Seth Basham maintained Bed Bath & Beyond with an Underperform rating on Wednesday and raised the price target to 25 cents after slashing his forecast to zero just one day earlier.

"Against the odds, BBBY secured financing for as much as ~$1.125b of additional capital, reducing the near-term risk that it enters bankruptcy and buying it more time to execute its turnaround efforts. However, this lifeline comes at an incredible cost to existing shareholders," Basham wrote in his latest note to clients.

See Also: Bed Bath & Beyond Shares Get $0 Price Target From Analyst After 'Last Gasp' Effort To Avoid Bankruptcy

After the market close on Monday, Bed Bath proposed an offering in the wake of a nearly 100% gain during regular trading hours. In early January, the retailer said multiple paths were being explored and next steps were expected to be determined soon, but the offering is an unwelcome step in the process for investors.

Although Bed Bath secured additional capital this week, the company did so at the cost of its existing shareholders, who could see over 80% dilution from convertible preferred shares and warrants if fully executed, the Wedbush analyst said.

Even if the company was able to execute on its turnaround plans, shareholders were likely to be left with essentially zero value, assuming a mid-single-digit EBITDA valuation against approximately $1.9 billion in debt. 

"As we see a low probability that the company achieves its 2023 turnaround plan, we ascribe little-to-no value to the company’s equity on a probability-weighted basis. Failure to secure the additional $800m and/or an unsuccessful turnaround in 2023 could put the company back on bankruptcy’s doorstep," Basham said.   

BBBY Price Action: Bed Bath had a 52-week high of $30.06 and a 52-week low of $1.27.

The stock was down 3.71% Thursday afternoon at $2.52 at time of publication, according to Benzinga Pro.

Photo: Mike Mozart from Flickr.