Stock: Shares of Bed Bath & Beyond Inc. BBBY, +24.77% soared Monday, as meme-stock investors expressed optimism a day ahead of the home goods retailer’s strategic update.
The stock rocketed 24.8% during regular trading, and another 3.3% after hours, while the S&P 500 index SPX, -0.67% slipped 0.7%. On Friday, the stock had climbed 5.9% while the S&P 500 tumbled 3.4%, after the company’s announcement that it would hold a conference call on Aug. 31 to offer a “business and strategic update.”
The recent gains also followed a report in The Wall Street Journal that said the retailer, which has struggled with liquidity issues and slumping sales and margins, was nearing final terms for a loan of close to $400 million.
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The stock rally also helped provide some intraday support to other meme stocks. GameStop Corp. shares GME, +1.97%, which reversed an earlier loss of as much as 1.8%, rose 1.9% on Monday, for their first gain in nine sessions. AMC Entertainment Holdings Inc.’s stock AMC, +3.27% climbed 3.3%, paring an earlier decline of as much as 2.8%.
Despite Bed Bath & Beyond’s strong two-day outperformance, most Wall Street analysts continued to warn investors not to buy the stock. Of the 18 analysts surveyed by FactSet, 12 were bearish and five were neutral, while only one was bullish. The average analyst price target for the stock was $3.70, which implied a 73% downside from current levels.
Wedbush analyst Seth Basham reiterated his underperform rating Monday, and kept his stock price target at $5.
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Although the additional financing will likely bear a much higher interest rate and come with restrictive covenants, Basham said it should “significantly decrease” short-term liquidity risk and “buy the company more time to address its bloated inventories, cost structure, and market share losses.”
Basham reminded investors, however, that the financing doesn’t change the fact that same-store sales for the second quarter were trending down in the range of negative-20s percentages from a year ago, and he remains “comfortable” with his forecast that operating margins will contract by around 12 percentage points. The company is projected to report second-quarter results in late September.
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“Even in a soft demand environment, BBBY’s market share losses are untenable and create risk into 2023 if BBBY cannot improve its value proposition to customers,” Basham wrote in a note to clients.
“Significant operational and balance sheet challenges leave us cautious and we believe current risk/reward remains disproportionately skewed to the downside,” he added.
Bed Bath & Beyond’s stock has plunged 40.9% since Aug. 17, when it peaked at $23.08 after a meme-stock resurgence sent it rocketing 359% in about two weeks.
Still, the stock has rallied 44.6% over the past three months, while shares of AMC have rallied 6.8% and GameStop has shed 8%. The S&P 500 has lost 3% over the past three months.
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