After hitting a one-year high of $37.61 last June, the stock hit a one-year low of $24.49 in January. BBBY opened this morning at $29.98. So far today the stock has hit a low of $29.72 and a high of $30.54. As of 12:05, BBBY is trading at $30.28, up $1.70 (6.0%). The chart for BBBY looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just seven weeks as long as BBBY is above $25 at August expiration. Bed, Bath & Beyond would have to fall by more than 17% before we would start to lose money. Learn more about this type of trade here.
Bed Bath & Beyond (NASDAQ: BBBY) reported Q1 earnings on Wednesday, and Trey Thoelcke highlighted the numbers in this earnings-recap piece. Shares rose substantially in the after-hours trading session yesterday, jumping over 8%, and as I reviewed various earnings reports last night, I found myself drawn to the retailer's stock performance. I haven't been a huge fan of Bed Bath & Beyond as of late, so I figured I should take a look at the earnings release to see if there's anything here that would change my opinion.
Unfortunately, there isn't. Sales may have grown 6%, and expectations may have been beaten by $0.03, but net income still dropped over 20% to $0.30 per diluted share. Cash flow from operations declined 44% to $65.8 million. And same-store sales were very anemic, rising only 0.8%.
I choose, in this case, to focus on those figures. I also consider the fact that Bed Bath & Beyond does not pay a dividend, and that we are in an awful economic environment, both from a consumer and stock-market standpoint. This is not the stock I'd want to face the recession with, and I don't necessarily find it to be a big value right now. When it comes to retail, I am more likely to look at Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). I'd even consider a Home Depot (NYSE: HD) or a Lowe's (NYSE: LOW). All of these stocks pay dividends and have better brand equities and more attractive prospects. Bed Bath & Beyond certainly didn't deliver an earnings bomb, but I'm still not inclined to put money here.
Disclosure: I don't own any company mentioned; positions can change at any time.
Here's a quick recap of some additional earnings reports on Wednesday.
Beaverton, Ore.-based Nike Inc. (NYSE: NKE) said strong growth overseas helped boost its fourth-quarter profit by 12% to $490.5 million, or 98 cents per share. Analysts polled by Thomson Financial expected the company to earn 96 cents per share for the quarter. Shares fell more than 5% in after-hours trading to $62.15.
CKE Restaurants Inc. (NYSE: CKR) said its first-quarter profit climbed 8% to $16.6 million, or 31 cents per share, helped by a small increase in same-store sales at Carl's Jr. restaurants. Revenue fell 3% to $466.2 million. Analysts polled by Thomson Financial expected profit of 27 cents per share on revenue of $465.5 million. Shares fell 5 cents to $12.25 in after-hours trading.
Red Hat Inc. (NYSE: RHT) said its fiscal first-quarter profit rose 6.6% to $17.3 million, or 8 cents per share. Adjusted earnings were 18 cents per share. Revenue rose 32% to $156.6 million. Analysts polled by Thomson Financial on average predicted a profit of 18 cents per share on revenue of $153 million. Shares fell 19 cents in after-hours trading to $22.11.
General Mills Inc. (NYSE: GIS) said its fourth-quarter profit dropped 17% to $185.2 million, or 53 cents per share. Adjusted earnings were 73 cents per share, which met Wall Street expectations. Sales increased 13% to $3.47 billion beating expectations. The company reaffirmed its guidance for the full year. Shares fell almost 2% to $61.19.
UBS initiated Interpublic Group (NYSE: IPG) and Omnicom Group (NYSE:OMC) with Buy ratings and an $11 target and $62 target, respectively. The firm views valuation as attractive.
Stocks started out in slightly positive territory on what appeared to be more good news out of a major institution. Then oil inventories showed an unexpected decline, sending oil up up over $2.00 per barrel to $110.56 and later even above $112. Throw in a couple of weak earnings reports and the fears that earnings season is going to be tough, and the bears got to rule today.
Below are today's unofficial closing levels for major US index levels:
Dow: 12,328.49, down 0.38%; Nasdaq 2,322.12, down 1.13%; S&P 1354.56, down 0.8%
Bed Bath & Beyond, Inc. (NASDAQ: BBBY) saw a sharp drop today, and that was before the earnings news was out after the close. A Piper Jaffray downgrade led to the sharp drop today.
Citigroup, Inc. (NYSE: C) proved to be a typical example of what is becoming redundant. The company lined up a sale of $12 billion of dollars worth of leveraged loans for some 90 cents on the dollar.
Bernstein downgraded Salesforce.com (NYSE: CRM) to "market perform" from "outperform" according toBriefing.com. The news service also reports that Citigroup initiated Southern Cooper (NYSE: PCU) with a "sell".
Banc of America Securities said that Allstate (NYSE: ALL) may miss first quarter earnings due to payments for storm damages according to the AP.
Stock futures were lower this morning, indicating the beginning of what could be another down day on Wall Street as more troubling news from the financial industry was reported, while UPS warned of a slowdown in its delivery business.
On Tuesday, U.S. stocks ended lower following a revenue warning from Advanced Micro Devices (NYSE: AMD), a lackluster earnings report from Alcoa Inc. (NYSE: AA), a dividend cut from Washington Mutual (NYSE: WM) and the Federal Reserve minutes, all of which affecting investors' sentiment. The Dow industrials closed 35 points lower, or 0.29%, the S&P 500 lost 7 points, or 0.51%, and the Nasdaq Composite dropped 16 points, or 0.68%.
This morning, given the very light economic calendar consisting of February wholesale inventories at 10:00 a.m. EDT, the Street will likely focus -- once again -- on the troubles in financials. The top story on the Wall Street Journal is about the options the Fed is considering to alleviate the credit crunch further including "contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail." While such plans aren't surprising and even welcome, the report comes after the Fed showed concern the economic downturn could last into 2009 when it released Tuesday the minutes of its FOMC meeting.
Consumer electronics retailer Circuit City Stores Inc. (NYSE: CC) and leading domestics retailer Bed Bath & Beyond Inc. (NYSE: BBBY) are scheduled to report earnings tomorrow. Here's a quick peek ahead of results.
Circuit City has fallen short of earnings estimates in the past five quarters. When the Richmond, Virginia-based company reported fourth-quarter results back in November, its loss of 64 cents per share was deeper than the 31 cents per share loss forecast by analysts polled by Thomson Financial, as well as the nine cents per share loss in the same period of 2006. For the current quarter, analysts expect the loss to narrow to six cents per share, compared to a profit of 61 cents in the year-ago quarter.
The company's earnings per share growth forecast for this year is a dismal -92.7%, worse than the industry average, as well as the 2.45% of rival Best Buy Inc. (NYSE: BBY). So it's little surprise that the analysts' consensus recommendation is to hold Circuit City, and has been for at least three months. Shares are trading much closer to the 52-week low of $3.44 from mid March than the 52-week high of $19.12 from almost a year ago. The share price closed Monday at $4.76, and fell to about $4.62 in early trading Tuesday.
For more about pressure to oust the CEO, to drop Circuit City from the S&P 500, or other news that could influence earnings results, see BloggingStocks' Circuit City coverage.
PDUFA date for Bristol-Myers Squibb Co. (NYSE: BMY)'s supplemental Biologics License Application for Orencia for the treatment of Juvenile Rheumatoid Arthritis.
Alcoa Inc. (NYSE: AA) to report Q1 earnings; conference call at 5pm.
Tuesday, April 8
Chattem Inc. (NASDAQ: CHTT) to report Q1 earnings; conference call at 9:00am.
FOMC to release minutes of the March 18th meeting at 2:00pm.
MOST NOTEWORTHY: Bed Bath & Beyond, DSW Inc and Oplink Comm were today's noteworthy downgrades:
JP Morgan downgraded Bed Bath & Beyond (NASDAQ: BBBY) to Underweight from Neutral citing recent sales commentary from competitors and the difficult macro environment.
Oppenheimer cut DSW Inc (NYSE: DSW) to Perform from Outperform following the company's Q1 miss and lower than expected guidance, as they see little visibility in the coming quarters.
Piper downgraded shares of Oplink Communications (NASDAQ: OPLK) to Sell from Neutral following the company's negative earnings preannouncement and lowered their target to $9.00 from $14.
OTHER DOWNGRADES:
Tiffany (NYSE: TIF) was downgraded to Sell from Neutral at Merrill.
MOST NOTEWORTHY: Sigma Designs, Sky West and UBS AG were today's noteworthy downgrades:
Sigma Designs (NASDAQ: SIGM) was lowered to Neutral from Outperform at Baird citing checks that indicate a more muted revenue outlook in 1H08 vs. 2H07.
Soleil downgraded shares of Sky West (NASDAQ: SKYW) to Hold from Buy to reflect the high-fuel-price environment and headwinds from the legacy carrier consolidation.
Bear Stearns downgraded UBS (NYSE: UBS) to Peer Perform from Outperform on concerns of further subprime write-downs.
OTHER DOWNGRADES:
Dresdner Kleinwort downgraded Credit Suisse (NYSE: CS) to Hold from Buy.
Morgan Joseph lowered Superior Essex (NASDAQ: SPSX) to Hold from Buy.
Bed Bath & Beyond (NASDAQ: BBBY) was downgraded to Underperform from Market Perform at Morgan Keegan.
MOST NOTEWORTHY: Intellon, Memsic and MGM Mirage were today's noteworthy initiations:
Jefferies believes Intellon (NASDAQ: ITLN) is well-positioned to benefit from increasing IPTV rollouts in Europe and Asia, as well as from additional consumer applications in the digital home. The firm assumed shares with a Buy rating and $9 target.
Jefferies also initiated coverage of Memsic (NASDAQ: MEMS) with a Buy rating and $10 target, as they view the company as a compelling investment for investors seeking exposure to high-quality semiconductor companies benefiting from lower-cost China manufacturing.
Banc of America initiated MGM Mirage (NYSE: MGM) with a Neutral rating and $76 target, as they are cautious on Las Vegas in 2008 due to decelerating U.S. gaming revenue growth and increasing Strip room supply growth between 2008-2010.
OTHER INITIATIONS:
Thomas Weisel initiated Bed Bath & Beyond (NASDAQ: BBBY) with a Market Weight rating.
Walt Disney (NYSE: DIS) and News Corp (NYSE: NWS) were started with Equal Weight ratings at Morgan Stanley.
Merrill initiated Baidu.com (NASDAQ: BIDU) with a Buy rating and $430 target.
The Dow Jones Industrial Average has started off as much as 464 points at the open but has been rebounding since. Even at the time that I've been writing this post, the Dow narrowed its decline from about 200 points to almost 100 points. When investors have been fearing since yesterday a 500 point free-fall, they collectively sigh at a 200 point drop.
Naturally, the Federal Reserve's rate cut of 75 basis points helped cushion the blow. Futures have indeed started rebounding immediately after the announcement. But what's interesting is the reaction this move caused. Financials, home builders and retailers are rebounding, with some financials and retailers being among today's best performers. Some financials like JPMorgan Chase (NYSE: JPM) and Merrill Lynch (NYSE: MER) are up over 3% and 3.6% respectively.
So you might say, financials I can understand. They've written down losses, their shares have declined markedly and with today's Fed cut, that could mean they've bottomed. But retailers? Hasn't everybody been talking about the consumers not having money and cutting spending? Especially come time of reset on their mortgages?
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Stock futures were lower this morning, indicating the beginning of what could be another down day on Wall Street as more troubling news from the financial industry was reported, while UPS warned of a slowdown in its delivery business.
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