2 Analysts Downgrade Bed Bath & Beyond, Stock Still Pops 30%

Bed Bath & Beyond Inc. BBBY offers investors a compelling recovery story but the stock's run to north of $50 per share prompted two analysts to downgrade the stock.

The Bed Bath & Beyond Analysts: Wedbush analyst Seth Basham downgraded Bed Bath & Beyond from Outperform to Neutral with a price target lifted from $27 to $33.

Baird analyst Peter Benedict downgraded Bed Bath & Beyond from Outperform to Neutral with a price target lifted from $30 to $37.

Stock Getting Ahead Of Itself: Bed Bath & Beyond's transformation story has a "high potential" for success and management should be able to deliver upside versus near-term guidance, Basham wrote in a note.

In the near term, foot traffic data compiled by Placer.ai indicates store traffic growth has notably improved in January. This would mark the early innings of a multi-year recovery as the company works towards achieving its 2023 EBITDA guidance of $850 million to $1 billion.

Despite a credible path forward, Basham said the stock's "extraordinary" run means the stock is now ahead of itself and incremental gains are unsustainable.

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'Take Some Chips Off The Table': Bed Bath & Beyond's transformational story has become "increasingly appreciated" by investors, Benedict said. Most notably, management's 2023 goals imply more than doubling 2019 EBITDA of $425 million and above 2021's guidance of $500 million to $525 million.

Shares aren't necessarily overvalued at current levels. Specifically, $40 per share is based on five times 2023E EBITDA (10% discount rate) while a multiple of six times implies a value in the mid-$50s.

"While higher multiples may be possible, transformations take time and are not without risk, so the stock's prospective valuation leaves little room for setbacks," the analyst wrote in the note.

BBBY Price Action: Shares of Bed Bath & Beyond were trading higher by more than 31% Wednesday to $24.96 and earlier hit a new 52-week high of $53.90.