BBBY Fiscal Q1 Earnings CheatSheet

by Dan June 25, 2013 2:03 pm • Commentary

Event:  BBBY reports their fiscal Q1 earnings Wednesday after the close.  The options market is implying about a 5.8% move following the results which is a bit shy to the avg over the last 4 qtrs of 8.8%.

Price Action:  The stock is up 23% ytd, dramatically outperforming the XHB (of which it is a component) which is now only up ~7% ytd.

Sentiment:  Wall Street analysts are fairly bullish on the stock with 17 Buys, 8 Holds and only 3 sells with an avg 12 month price target of ~$75.50.  Short interest has been creeping up and not sits at about 6% of the float at 52 week highs.

Technical Set up:   The one year chart is at a fairly critical support level sitting right on its 50 day moving average, with the next obvious support level at its 100 day moving average about $65.

BBBY 1 yr chart from Bloomberg
BBBY 1 yr chart from Bloomberg

On a longer term basis the chart looks fairly horrible with a possible double top recently formed and the subsequent break below the long term uptrend that has been in place since the 2009 lows.

BBBY 5yr chart from Bloomberg
BBBY 5yr chart from Bloomberg

Valuation:  BBBY is not an expensive stock trading at ~12x next years earnings that are expected to grow at 10% in fiscal 2014 and 12% in fiscal 2015 with its P/E trading near 10 year lows.

BBBY 10 yr PE chart from Bloomberg
BBBY 10 yr PE chart from Bloomberg

 

Volatility Snapshot:  30 day at the money implied vol (blue line) has picked up in front of earnings, while realized volatility (white line) remains fairly subdued near 52 week lows.  IV should come back to the low 20s following results.

BBBY 30 day IV vs 30 day Realized Vol from Bloomberg
BBBY 30 day IV vs 30 day Realized Vol from Bloomberg

 

Options Open Interest:  The put call ratio is fairly even with close to 74k options open, with the largest lines 2900 of the Jan 57.50 calls, 2600 of the July 67.50 puts and 2600 of the Jan 60 calls.

MY 2 CENTS:  Without doing a deep dive on the fundamentals (and to be clear this is not a name that I have ever done a whole heck of a lot of work on), I don’t really love the technical set up.  The pros are very simple, the company has a very clean balance sheet, expected double digit earnings growth for the foreseeable future and they get most of their sales from the U.S. which could make them immune to a slowdown in global growth, and the stock is cheap on a forward P/E basis.  If the company were to beat Q4 and possibly raise 2014 guidance the stock could see a nice pop in the magnitude of the implied move which would bring it back to the 52 week highs above $72.

That being said, the perceived connection to the U.S. housing recovery, in the face of higher interest rates and the recent dreadful action in the home-builder and Reit stocks could suggest that a stock like BBBY (which does not pay a dividend and thus has no yield) could be vulnerable in the event of weaker than expected guidance.

We will take a close look at this one over the next day or so and see if anything makes sense to play for a disappointment.