Back in mid-November, specialty retailer Bed, Bath & Beyond (NASDAQ: BBBY) was cut by J.P. Morgan from neutral to underweight based on the home-improvement retailer's current quarterly results -- which will most likely be "fine". What's all the fuss about, then?J.P. Morgan says that BBBY's current fiscal quarterly outlook is great but that fact is already factored into the current share price. The analytical methods that the ratings houses use to determine this have always been a little shaky to e, but this time the method must have been "one potato, two potato" or something similar.
J.P. Morgan told its clients that BBBY's operating margins have contracted in the last three quarters and that operating cash flows have growth at a slower pace than earnings. This is true -- but I'm still confused over more specifics that allow one to conclude that BBBY's share price has these factors already thrown in. Sometimes, plugging in a formula is not the best way to arrive at a conclusion, but it's worth noting regardless.
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