What’s going on with Bed Bath & Beyond stock?

Bed Bath & Beyond (NASDAQ:BBBY) stock dropped on Tuesday, even by the standards of an awful day for the stock market. Specifically, the underperforming specialty retailer’s stock dropped nearly 10% owing to an analyst’s comment suggesting that a business unit was worthless in the light of recent events.

Why we care

Bank of America (NYSE:BAC) Securities prognosticator Jason Haas authored the note that valued the company’s buybuy Baby business at under $250 million. On Friday, according to “people familiar with the matter,” The Wall Street Journal broke the news that Bed Bath & Beyond was considering acquiring potential buybuy Baby purchasers.

Cerberus Capital Management, a private equity firm, and Tailwind Acquisition (NYSE:TWND), a special purpose acquisition company (SPAC), have both expressed interest.

While the sources for this article did not provide an exact figure for what Bed Bath & Beyond might get for the business. However, activist investor Ryan Cohen claims that buybuy Baby may be worth more than the whole of its parent company. As of Tuesday’s market close, Bed Bath & Beyond’s market value was about $1.25 billion.

Given the subsidiary’s profitability, Haas believes it doesn’t have anywhere near that amount of value. He wrote in his note: “Assuming 22 new stores are added per guidance and $70 [million] of dis-synergies split equally, we estimate [buybuy] Baby alone would generate $44 [million] of [earnings before interest, tax, depreciation, and amortization, or EBITDA] in [2022].”

What now

Despite the Bank of America analyst’s gloomy prediction, it’s reasonable to think that buybuy Baby is attracting attention from potential buyers – and may even fetch a premium.
In contrast to its struggling parent firm, which reported a staggering 15% year-over-year decrease in same-store sales during the most recent quarter, buybuy Baby increased. It also had a significantly higher EBITDA margin than Bed Bath & Beyond.

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