This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bed Bath & Beyond Deal Shows Right Kind of Risk Taking

NEW YORK ( TheStreet) -- CEOs are keeping a tight hold on corporate purse strings and that's caused a recent M&A lull. For investors, it's a lull that should have them taking a look at the exceptions to the rule among risk-averse CEOs.

Bed Bath & Beyond (BBBY - Get Report) and its CEO Steven Temares are a good example. The retailer's biggest acquisition ever, announced earlier this week, is a sign that the company is putting its balance sheet to work in deals that generate earnings growth to offset what could be a coming earnings slowdown.

Markets were absorbed by JPMorgan's (JPM) Thursday loss after a mega-trade soured, overshadowing a different story this week that was the right kind of corporate risk: Bed Bath & Beyond's acquisition of Cost Plus World Market (CPWM) in a deal that may dispel fears of a slowdown at the brick-and-mortar home goods store.

In Friday trading Bed Bath & Beyond shares surged 5% to $71.91, near record highs on an upgrade and increasing optimism on the benefits of the deal, and the surge may have a wider relevance than just the impact to its shareholders.

An April poll of corporate executives by Ernst & Young showed interest in mergers falling significantly in the first quarter, with just 31% of C-suites interested in cutting large deals, the lowest appetite since early 2009 and down from over 50% in previous quarters. Sharply falling M&A volumes and advisory-based earnings reflect that caution. Yet at the same time, CEOs are sitting on piles of cash and pouring it into share buybacks and dividends.

The positive market reaction to Bed Bath & Beyond's acquisition shows the benefit of staying aggressive in a landscape of austerity, share buybacks and corporate split-ups. The deal also comes as some investors put their money behind M&A hungry companies and S&P forecasters say that 2012 stock market gains may need to come outside of falterning earnings -- the lynchpin of a recovery from March 2009 lows.

After successfully competing with the likes of Web-based competitor Amazon (AMZN) and big box retailers, Bed Bath & Beyond's near-$500 million acquisition may give the company new channels of sales growth after it already posted a 30%-plus three year growth rate of earnings, boosting shares.

"[The] acquisition of Cost Plus adds some significant growth potential to what is already a very compelling but slowing growth story," wrote Credit Suisse analyst Gary Balter in a note to clients upgrading Bed Bath & Beyond to a buy and its price target to $91 from $75 a share.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ADBE $82.06 0.81%
BBBY $64.44 0.11%
AAPL $114.64 -3.21%
FB $94.06 -0.08%
GOOG $629.25 -0.31%

Markets

Chart of I:DJI
DOW 17,550.69 -47.51 -0.27%
S&P 500 2,093.32 -4.72 -0.22%
NASDAQ 5,105.5460 -9.8360 -0.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs