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Bed Bath & Beyond is an Industry Best

By Michael Lewis - Sep 27, 2013 at 5:24PM

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The home goods chain beat estimates and sailed through a tough period for most retailers. The stock is appealing on the back of a long-term housing recovery.

Home goods giant Bed Bath & Beyond (BBBY 21.82%) continues to thrive during a time when most retailers are on damage control. This week, the company reported earnings that surpassed analyst expectations. Meanwhile, news that the 30-year mortgage rate fell to its lowest level in several months offered new encouragement to homebuilders and home goods retailers.

While the macro environment suggests good things to come in the long term for home-related companies, many of Bed Bath & Beyond's peers have suffered in recent months. Here's what makes this company a better performer and a better stock to own today.

Earnings recap
For its fiscal second quarter, Bed Bath & Beyond saw sales grow nearly 9% to $2.82 billion. Same-store sales grew an impressive 3.7%, while its earnings per share hit $1.16 -- an 18% premium to the year-ago quarter and $0.01 above the analyst consensus. Shares, as a result, rose 7% on the day and continued on climbing through Thursday.

Management certainly didn't gloat, though, and stayed the course for its third-quarter guidance at $1.11$1.16 per share. For the full year, the company bumped up its EPS guidance to $4.88-$5.01.

The income statement isn't the only encouraging spot for the company. Bed Bath & Beyond has kept its balance sheet squeaky clean with nearly no debt to speak of, and holds nearly $9 billion in current assets. Though it already has many other chains beyond its namesake, the company is in a position to expand organically or via acquisition with easy access to the capital markets.

Cleaning up
The stock trades near its 52-week high, and has gained roughly 18% in the past 12 months, yet neither of these suggest Bed Bath & Beyond has peaked or is overvalued.

The stock has a forward P/E of 13.85 and an EV/EBITDA of 8.22. Smaller competitor Pier 1 Imports recently delivered disappointing earnings and bearish guidance. It trades at slightly more than 13 times forward earnings, and has an EV/EBITDA of 8.39. Williams-Sonoma trades at nearly 18 times forward earnings and an EV/EBITDA of 8.84. A Citigroup analyst has the latter projected to grow profits well into the teens -- similar to Bed Bath & Beyond.

According to a recent Forbes piece, home furnishing sales are up 4.8% in the third quarter, and 4.3% sequentially from the second quarter.

With a sustained housing recovery in place, demand for its products will keep Bed Bath & Beyond likely growing its business for the foreseeable future. While not bargain priced, the stock offers investors predictable growth and a sound management team to navigate the treacherous retail waters.


Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pier 1 Imports, Inc. Stock Quote
Pier 1 Imports, Inc.
Williams-Sonoma, Inc. Stock Quote
Williams-Sonoma, Inc.
$158.83 (1.98%) $3.09
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
$12.95 (21.82%) $2.32

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