Ryan Cohen thinks Bed Bath should sell the company, Wells Fargo says sell the stock Shares of this home goods seller are in the spotlight on Monday after Ryan Cohen, the co-founder of online pet-products retailer Chewy (CHWY) and chairman of videogame retailer GameStop (GME), confirmed it has taken a big stake in the company and is pushing the housewares retailer to streamline its strategy and explore strategic alternatives. Following the news, Wells Fargo analyst Zachary Fadem raised his price target on Bed Bath & Beyond (BBBY) shares to $20, but kept an Underweight rating on the name as he believes the company remains structurally disadvantaged, fundamentals are weakening, and the activist pitch is largely predicated on a takeout that he views being "overly complicated and unlikely."
RYAN COHEN TAKES STAKE, PUSHES FOR SALE: In a regulatory filing, RC Ventures, the investment company of Chewy co-founder and GameStop chairman Ryan Cohen, confirmed it holds a 9.8% stake in Bed Bath & Beyond. The firm purchased the shares based on the belief that the shares were "undervalued and represented an attractive investment opportunity," the filing stated. "The firm intends to engage in communications with the Issuer's Board of Directors and management team regarding opportunities to enhance shareholder value and improve corporate governance. On March 6, 2022, the [firm] delivered a letter to the Board encouraging the Board to adjust the [company's] strategy and explore alternative paths to value creation. Specifically, the [firm] expressed their belief that the [company] should narrow its focus to fortify operations and maintain the right inventory mix to meet demand, while simultaneously exploring strategic alternatives that include separating buybuy Baby, Inc. and a full sale of the [company]," the filing noted.
Bed Bath & Beyond has responded to the letter from RC Ventures to the company's board of directors by saying in a statement that, "Bed Bath & Beyond's Board and management team maintain a consistent dialogue with our shareholders and, while we have had no prior contact with RC Ventures, we will carefully review their letter and hope to engage constructively around the ideas they have put forth. Our Board is committed to acting in the best interests of our shareholders and regularly reviews all paths to create shareholder value. 2021 marked the first year of execution of our bold, multi-year transformation plan, which we believe will create significant long-term shareholder value."
WELLS SAYS SELL: Wells Fargo analyst Zachary Fadem raised the firm's price target on Bed Bath & Beyond to $20 from $12 but kept an Underweight rating on the shares following news that RC Ventures intends to go active with a 9.8% stake. Proposals include streamlining Bed Bath & Beyond's complex turnaround plan, monetization of buybuy BABY, exploration of strategic alternatives, and changes in senior management's compensation structure, Fadem highlighted. The analyst acknowledged that considering Bed Bath & Beyond's 26% short interest and low investor expectations for improving results, Monday's likely move higher is "understandable." That said, he sees another opportunity for longs to take profits. In his view, the Bed Bath & Beyond asset remains structurally disadvantaged, fundamentals are weakening, and the activist pitch is largely predicated on a takeout that he views "overly complicated and unlikely."
The analyst noted that At Home was the last public peer to be acquired with a valuation at a $2.8B, suggesting at least a $2B valuation for buybuy BABY assuming a low-teens EBITDA multiple. This points to buybuy BABY potentially being worth more than the combined entity, yet allocation of Bed Bath & Beyond's $1.2B in debt remains a question along with dis-synergies associated with breaking apart a well-integrated entity, he added. Fadem also believes this is not an ideal time to explore strategic alternatives, as retail share price/valuations are depressed, rates are rising, and geopolitical factors present risk to the consumer following two years of outsized category growth, Lastly, the analyst pointed out that on a sum-of-parts basis, his $20 price target implies core Bed Bath & Beyond/buybuy BABY are worth $540M/$2B, or $1/$19 per share.
PRICE ACTION: In Monday morning trading, shares of Bed Bath & Beyond had more than doubled, though they have come off their best levels to be up about 54% at $24.88 per share.
