Please ensure Javascript is enabled for purposes of website accessibility

Analyst: Bed Bath & Beyond Has a 32% Downside as COVID-19 "Nesting" Tapers Off

By Rhian Hunt - Feb 1, 2021 at 2:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The firm is positive about Bed Bath & Beyond but thinks it's overvalued.

Home retailer Bed Bath & Beyond Inc. (BBBY -3.57%) got a sharp downgrade from KeyBanc today, with the new price target of $24 representing a 32% downside from its share value at market open. KeyBanc also dropped the company from sector weight to underweight, though it explains these changes aren't because of executive or strategic failings but result from factors largely outside the retailer's control, MarketWatch reports.

One of these factors causing Bed Bath & Beyond to be currently overvalued, according to KeyBanc, is the massive boost to GameStop (GME -4.08%) shares caused by WallStreetBets redditors buying up huge quantities of the stock. Other companies have been caught up in the short squeeze, including Bed Bath & Beyond, which also has considerable short interest.

The end of the "nesting" trend exemplified by an African weaverbird leaving its nest.

Image source: Getty Images.

The other major factor in play, as noted by KeyBanc analyst Bradley Thomas, is that "nesting" is likely to decline soon, with people spending less on their homes and home improvements as COVID-19 lockdowns recede and demand for outside-the-home activities sees a resurgence. The Fly reports Thomas expects purchases of "things" to fall off as people turn toward "experiences" as a target for their spending.

While noting the short-squeeze phenomenon and "nesting" are responsible for the stock market likely assigning a lot of excess value to Bed Bath & Beyond, KeyBanc is also careful to indicate its downgrade doesn't mean the company is poorly operated. The research note states "we think highly of CEO Mark Tritton and his team and their turnaround plan" but that "with the stock up 96% YTD we believe the valuation sets too high a bar to clear at 25x 2021 EPS."

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$6.75 (-3.57%) $0.25
GameStop Corp. Stock Quote
GameStop Corp.
GME
$129.69 (-4.08%) $-5.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.