Bed Bath & Beyond Could Fall Nearly 30%

Loop Capital expects shares of Bed Bath & Beyond Inc. BBBY to fall about 26 percent due to deteriorating fundamentals, questionable corporate governance and poor competitive positioning.

The brokerage initiated coverage of Bed Bath & Beyond shares with a Sell rating and price target of $35, saying the stock is overvalued at current levels.

Broad Concerns

The home furnishing retailer has failed to adjust to the secular shift to online shopping. The brokerage said the company’s expanding assortment of gimmicky “As Seen On TV” merchandise is having a negative impact on consumers’ in-store experience.

On the fundamental front, Bed Bath & Beyond’s operating margin has declined from 16.5 percent in F 2011 to 9.7 percent in F 2016.

“[W]e see no reason to expect the company’s profitability to improve substantially in the near future. We expect increased coupon redemptions and online sales and investments to continue to weigh on profit margins,” analyst Anthony Chukumba wrote in a note.

Chukumba is also concerned with the company’s corporate governance, including limited investor communications, excessive management compensation, and questionable acquisitions, especially in this tough phase.

Shares of Bed Bath & Beyond closed Monday’s trading at $47.09. In the pre-market hours Tuesday, they were seen down 2.31 percent to $46.