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Why Bed Bath & Beyond Inc. Shares Slipped

By Brian Pacampara – Mar 6, 2014 at 12:50PM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Bed Bath & Beyond (BBBY -2.49%) slipped about 1% today after Wedbush downgraded the home-merchandise retailer from outperform to neutral.

So what: Along with the downgrade, analyst Seth Basham lowered his price target to $66 (from $86), representing about 4% worth of downside to yesterday's close. So, while contrarians might be attracted to Bed Bath & Beyond's sharp pullback in 2014, Basham's bear call, which is based on his view of a slowing housing market, suggests that the upside remains limited. 

Now what: According to Wedbush, Bed Bath & Beyond's risk/reward trade-off is unfavorable at this point. "Based on our revised housing outlook, we believe BBBY comps may fall short of expectations for 2014 by ~50 bps, with the pressure mounting in the back half," noted Basham. "Outside of the macro, the fundamental outlook remains challenged and there is little visibility that internal changes will significantly improve trends in the near-term." Of course, with the stock now off about 15% from its 52-week highs and trading at a forward P/E of 12, those short-term concerns might be providing patient Fools with a solid long-term opportunity.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. 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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