Shares of Bed Bath & Beyond Inc. rose on Monday, only to retreat into broad market declines for a second straight day as meme-stock investors expressed optimism ahead of the home goods retailer’s strategic update.
The stock jumped 7.3% in midday trading, while the S&P 500 SPX,
fell 0.7%. On Friday, the stock had climbed 5.9% while the S&P 500 fell 3.4%, after the company said it would hold a conference call on Aug. 31 to provide a “business and strategic update.”
The recent earnings also followed a Wall Street Journal report that the retailer, which has been struggling with liquidity and declining sales and margins, was nearing final terms on a near $400 million loan.
The stock’s rally also helped provide some intraday support for other meme stocks. GameStop Corp. shares GME,
which reversed an earlier loss of as much as 1.8%, rose 1.5% on Monday, putting them on track for their first gain in nine sessions. The stock of AMC Entertainment Holdings Inc., AMC,
it was down 0.7% at midday, but had earlier fallen as much as 2.8%.
Despite Bed Bath & Beyond’s strong two-day outperformance, most Wall Street analysts continued to warn investors against buying the stock. Of 18 analysts surveyed by FactSet, 12 were bearish and five were neutral, while only one was bullish. The average analyst price target for the stock was $3.70, suggesting a 68% downside from current levels.
Wedbush analyst Seth Basham reiterated his underperform rating on Monday and maintained his price target on the stock at $5.
While the additional financing will likely carry a much higher interest rate and come with restrictive covenants, Basham said it should “significantly reduce” short-term liquidity risk and “buy the company more time to deal with its bloated inventories, the cost structure and market share losses. .”
Basham reminded investors, however, that the funding doesn’t change the fact that second-quarter same-store sales trended down in the negative-20 percent range from a year ago, and he remains “comfortable” with his prediction that the operating margins will shrink by about 12 percentage points. The company is expected to present its second quarter results at the end of September.
“Even in a soft demand environment, BBBY’s market share losses are unsustainable and pose a risk in 2023 if BBBY cannot improve its value proposition to customers,” Basham wrote in a note to clients.
“Significant operational and balance sheet challenges leave us cautious and we believe the current risk/reward remains disproportionately skewed to the downside,” he added.
Bed Bath & Beyond stock has plunged 50.3% since Aug. 17, when it peaked at $23.08 after the stock meme resurgence sent it soaring 359% in about two weeks.
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The stock has rallied 24.4% over the past three months, while shares of AMC gained 2.8% and GameStop fell 8.5%. The S&P 500 has lost 3.1% over the past three months.