Even by the standards of an awful day for the stock market, Bed Bath & Beyond's (BBBY) shares took a real bath on Tuesday. The struggling specialty retailer's stock lost nearly 10% of its value on the back of an analyst's note calling into question the worth of a business unit that has been in the news lately.
That note was written by Bank of America Securities prognosticator Jason Haas, who valued the company's buybuy Baby business at slightly under $250 million. On Friday, citing "people familiar with the matter," The Wall Street Journal broke the news that Bed Bath & Beyond was entertaining interest from potential buybuy Baby acquirers.
Among these suitors are private equity firm Cerberus Capital Management and a special purpose acquisition company (SPAC) called Tailwind Acquisition.
While the article's sources didn't specify how much Bed Bath & Beyond might fetch for the unit, activist investor Ryan Cohen has said that buybuy Baby could, somehow, be worth more than the entirety of its parent. As of Tuesday's market close, Bed Bath & Beyond's market cap was a shade under $1.25 billion.
Haas doesn't feel the subsidiary has anywhere near that kind of value, given its profitability. In his note, he wrote: "Assuming 22 new stores are added per guidance and $70 [million] of dis-synergies split equally, we estimate [buybuy] Baby alone would generate $44 [million] of [earnings before interest, tax, depreciation, and amortization, or EBITDA] in ."
Despite the Bank of America analyst's downbeat assessment, it's reasonable to believe buybuy Baby is attracting interest from potential suitors -- and could thus fetch at least something of a premium.
In contrast to its ever-struggling parent company, which revealed a queasy 15% year-over-year decline in same-store sales in its most recent quarter, buybuy Baby actually saw that metric increase. It also posted a notably higher EBITDA margin than Bed Bath & Beyond itself.