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TALES OF THE TAPE: Buybacks Seen Bolstering Bed Bath & Beyond

   (This article was originally published Friday)

   By Mary Ellen Lloyd
   Of DOW JONES NEWSWIRES

Bed, Bath & Beyond Inc. (BBBY) shares are lofty, but some company watchers expect a new wave of share repurchases could bolster the stock's premium valuation.

Recently trading at $36.38, shares have more than doubled from a nine-year low in November amid evidence the housewares retailer is capturing more than its fair share of business since major competitor Linens 'N Things shut all 600 stores early this year.

Hussman Strategic Growth Fund and RCM Capital Management LLC are among major shareholders that have boosted their stakes in recent months, and short interest has fallen sharply.

"It's a good quality company with emerging concepts and a strong management," said Wedbush Securities analyst Joan Storms, who has an outperform rating and a $46 12-month price target. With strong management of inventory and costs, Bed, Bath & Beyond is also taking time to get the financial metrics right before more rapidly expanding its Christmas Tree Shops, buybuy BABY and Harmon discount beauty chains, she said.

Meanwhile, UBS, which initiated coverage of the stock with a buy rating and $ 43 price target Monday, is baking into its financial forecasts roughly $1.9 billion in share repurchases between this year and February 2012. At current prices, that could reduce outstanding shares by up to one fifth.

"With no long term debt and cash of over $1 [billion] ... we believe significant share repurchases are likely in the near future," analyst William Truelove said in a note to clients.

Share repurchases plus annual store growth of 4% to 5% for the next few years should generate mid-teens percentage earnings growth and justify a forward price-to-earnings multiple of 18.5 times that is a premium to peers, according to Truelove.

Many retailers are pulling back to almost no store growth. Yet Bed, Bath & Beyond, which declined to comment for this article, is opening close to 100 stores this year and sees room for another 400 namesake stores in the U.S. and Canada. It currently operates about 950 Bed, Bath & Beyond stores and more than 100 under its emerging brands.

Sales at U.S. home furnishings stores fell 13% during the June-to-August period corresponding to Bed, Bath & Beyond's fiscal second quarter, when it reported a 0.6% same-store sales decline and topped Wall Street's forecasts. Most analysts expect the Union, N.J., company to beat its own guidance again for the the Nov. 30-ending quarter.

"My best guess is they'll probably return to positive comps this quarter," Storms said. Every percentage point of same-store sales growth should generate roughly 3 cents to 5 cents a share in earnings, she added.

While many department stores are reporting weak sales of home goods, Bed, Bath & Beyond, Pier 1 Imports Inc. (PIR) and TJX Corp.'s (TJX) Homegoods chain are among specialty retailers that seem to be attracting shoppers seeking inexpensive ways to spruce up their homes. Cookware, bedding and bath products have all shown some strength in recent weeks, while big-ticket furniture sales remain very weak.

Still, there are skeptics of the idea that shares have much room to rise.

Tsai Capital Corp. founder and Chief Investment Officer Christopher Tsai, a former shareholder and longtime fan of the company, notes several members of Bed, Bath & Beyond's famously conservative management have sold stock over the last six months at prices close to current levels.

"I don't expect them to do a large buyback," he said.

(Mary Ellen Lloyd covers home-related retailers from Charlotte for Dow Jones Newswires. She can be reached at 704-371-4033 or by email at maryellen.lloyd@ dowjones.com.)

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