Thursday, Credit Suisse downgraded Bed Bath & Beyond, Inc. (BBBY) shares to Neutral from Outperform, while increasing its price target to $41 from $35. The brokerage raised its 2009 EPS estimate to $1.85, and its 2010 estimate to $2.15.
Analyst Balter attributed the downgrade purely on valuation, as he believes that the 52-week high the stock reached September 23 discounts that upside. BBBY has been the poster child for the analyst's investment thesis over the past two years.
The analyst said that it combined early cycle dependence on the housing market, benefited from a major bankruptcy in its sector, pulled back its SG&A below its comp running rate and is now showing the gross margin upside that one would expect given the change in the competitive dynamics and the increased power over vendors.
The analyst raised estimates and in a stronger consumer spending environment can see upside from the $2.15. However, using that number the stock trades at 18x next year's estimate, and while probably the best positioned company in the analyst's coverage, that multiple seems to reflect much of the upside potential.
Importantly, the analyst's rating change is not a call on management or the quarter reported last night. The analyst couldn't write a stronger script than they have delivered and given the strength of this management team he expects them to keep on delivering.
However, on a relative basis, this stock is becoming expensive relative to Dick's Sporting Goods Inc. (DKS), O'Reilly Automotive Inc. (ORLY), Lowe's Companies Inc. (LOW) and a few other names with similar or better longer term growth prospects.
The analyst increased price target to $41, reflecting 19x next year's estimate, as he believes that the company will be able to sustain strong growth past 2010 helped by share buybacks as well. However, with the gap widening between the loved and unloved names in universe, the analyst is pulling back into more of the unloved at this time.
Currently, BBBY is down $1.68 or 4.31% and trading at $37.34.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.