Schaeffer's Trading Floor Blog

Is Bed Bath & Beyond Inc. (BBBY) Headed for Lower Lows?

Analysts are cutting BBBY's price targets, following a bleak earnings report

by 6/26/2014 11:07 AM
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Bed Bath & Beyond Inc. (NASDAQ:BBBY) is plummeting this morning, down more than 9% to trade at $55.55. Earlier, in fact, the shares touched a new annual low of $54.96, following last night's disappointing fiscal first-quarter earnings report, which included a weaker-than-expected bottom-line guidance for the current quarter. Ahead of the event, however, option traders had been betting bullishly on the home goods retailer.

Diving deeper, during the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly 32,000 BBBY calls, versus fewer than 20,300 puts. The resultant 50-day call/put volume ratio across those exchanges registers at 1.58 -- higher than 80% of comparable readings from the past year.

At the same time, however, short sellers have been active. In fact, short interest on Bed Bath & Beyond increased nearly 42% during the past two reporting periods, and now comprises 5.6% of the equity's float. At the stock's average daily trading volume, it would take more than a week to cover these bearish bets. In other words, the aforementioned call buying may have been the work of short sellers looking to hedge against an unexpected rise.

On the Street, sentiment toward BBBY has been mixed. While 13 out of 20 covering analysts have doled out "hold" or worse ratings, the remaining seven have given the shares a "strong buy" endorsement. What's more, the stock's consensus 12-month price target of $69.37 stands at a roughly 25% premium to the current price.

Not surprisingly, no fewer than five brokerage firms lowered their price targets on Bed Bath & Beyond Inc. (BBBY) this morning. Nevertheless, even the downwardly revised targets are higher than the shares' current perch. In other words, if BBBY continues to struggle -- which is possible, especially since recent support at the $60 level has been taken out -- there's still room for additional price-target reductions, as well as downgrades.

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