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Bed, Bath & Beyond Any Chance of Shining?

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The company isn't likely to stand out in this environment.

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Although the economic recovery is likely to take time, investors appear rather confident that Bed Bath & Beyond (BBBY) is a good bet. After all, the stock has bounced back very sharply from its lows earlier in the year, and its flirting with a 52-week high.

But is now the time to shop for the stock given its recent run and ahead of its second-quarter earnings, which are due out tomorrow?

Here are my thoughts:

1. The fact that the company has beaten estimates in the last three quarters is a good sign. But perhaps that sword slices both ways. Like Pavlov's dogs, investors may start to expect certain things after a while and I'm having some doubts as to whether it can continue the string of upside surprises quarter after quarter. Remember that many of its wares, which range from teapots to tissue boxes, can be found in many other stores.

2. At 19.2 times next year's estimate of $2.01, it looks pretty fairly valued right where it is. Take a gander at Wal-Mart (WMT), which has a huge foothold in bathroom and kitchen knickknacks (among other stuff). It can be grabbed for under 14 times this year's estimate.

3. Let's not forget about the competition it's likely to face from the Arkansas-based retailing giant, never mind Target (TGT), Pier One (PIR), and Williams Sonoma (WSM). Without having the largest footprint, lowest prices, and prettiest store, I don't see how it's going to stand out in this environment

4. Sadly, its sales haven't been off the hook, nor its gross margins on a tear. Sales were up an unimpressive 2.8% in the first quarter and comps were off about 1.6%. Its gross profit as a percent of sales came in at 39.4%, whereas in the first quarter of last year it was 39.8%.

5. On the flip side, the stock is near its 52-week high, and that could generate lots of ink and attention. I can still hear an old boss of mine saying: "New highs beget new highs."

6. I do believe it will meet or beat the $0.47 estimate for the second quarter. And if I'm correct, that could grab press and attention and cause the momentum the shares have seen recently to continue. You never know -- some institutions looking to pretty up their holdings might take a position as well, if that happens.

I don't think Bed Bath & Beyond is a bad company -- I've shopped the aisles many a time over the last dozen or so years that I've been married. But all things considered, I don't see myself bellying up to the stock any time soon.

Hey, have a great day!
No positions in stocks mentioned.

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