Benzinga | Jun 11, 2021 12:13PM EDT

Bed Bath & Beyond Has Overshot Fair Value, Could Be In For 30% Downside: Analyst

Bed Bath & Beyond Inc.'s (NYSE:BBBY) fundamentals and valuation are at a disconnect, according to a KeyBanc Capital Markets analyst.

The Bed Bath & Beyond Analyst: Bradley Thomas has an Underweight rating and $22 price target for Bed Bath and Beyond shares.

The Bed Bath & Beyond Takeaways: Bed Bath & Beyond is a fundamentally challenged retailer undergoing a turnaround by a highly respected new management team, Thomas said in a note.

The retailer's valuation has recently "gotten ahead of itself,'' the analyst said.

Bed, Bath & Beyond shares are up 93% year-to-date compared to the 13% gain for the S&P 500 in the same period, he said.

This is a function of short squeezes engineered by the Reddit message board WallStreetBets, Thomas said.

"Thus, in our view, BBBY shares currently far exceed fair value," the analyst said.

Given the stock's valuation, a risk of "Nesting" trends unwinding and ongoing competitive risk following the share price spike of about 33% since late May, the valuation appears elevated, he said.

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KeyBanc's $22 price target is based on 15.2 times the firm's 2021 EPS estimate of $1.45 and represents 30% downside from Thursday's closing price.

First-quarter data indicates potential outperformance by Bed Bath & Beyond relative to Street expectations, Thomas said.

Yet monthly trends peaked in April and have since slowed, suggesting the strength was largely driven by government stimulus, the analyst said.

"This is corroborated by weekly data, which shows a spike for BBBY when stimulus checks hit in March and a steady, sequential decline as the impact waned."

BBBY Price Action: At last check, Bed Bath & Beyond shares were trading slightly positive to $31.54.

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