BofA sees 50% downside for Bed Bath & Beyond as liquidity concerns loom large
Bank of America analyst Jason Haas sees potential in Bed Bath & Beyond (NASDAQ:BBBY) shares will be cut in half after an abysmal earnings release on Wednesday.
He indicated that unfavorable sales results and inflated inventory confirm his team’s earlier suspicions that management had jumped too quickly into proprietary brands that simply didn’t appeal to consumers. In fact, Haas expects many core customers to be alienated by the lack of national brands and to be “hard to win back.”
However, Haas said the steep declines in sales aren’t even the biggest threat to the company in the near term.
“Liquidity is now our primary concern after the business burned over $500 million in the first quarter,” he explained. “At the end of the first quarter, BBBY has a cash balance of $100 million and $700 million available on its gun.”
Obviously, the company cannot continue at this rate. Although Haas has modeled an improving trend through the end of the year as inventory levels decline, there are, in his view, sufficient reasons to remain wary of the sustainability of the company as part of this trend.
“We are cautious that suppliers may start to reduce payment terms,” Haas warned. “If these are reduced from 60 to 30 days, that would imply a cash outflow of $400 million, which would put BBBY in a very tight liquidity position.”
As such, it has reduced its price target to just $2.40 from $3 previously, reaffirming an “Underperforming” rating. He has held this bearish rating on stocks since October 2021, with stocks down around 70% from then. The shares fell more than 4% in premarket trading on Thursday, implying an opening price of around $4.80.
Elsewhere, Haas has indicated that he thinks a Buy Buy Baby sale appears “out of place” as the company undergoes a management transition.