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Why Bed Bath & Beyond (BBBY) is Plunging on Thursday

Updated from 9:05am EST to include updated stock prices by market open. 

NEW YORK (TheStreet) -- Bed Bath & Beyond (BBBY) is tumbling tumble on Thursday after reporting lower-than-expected third-quarter and as Credit Suisse downgraded its rating. 

The homewares retailer reported net income of $1.12 a share for the quarter ended Nov. 30, 2013, several cents short of the $1.15 analysts surveyed by Thomson Reuters had anticipated. Revenue of $2.86 billion was slightly lower than the $2.88 billion expected, but was 6% higher than the year-ago quarter.

Comparable store sales, however, came in 1.3% higher compared to a 1.7% increase in the same quarter in 2012.

Credit Suisse downgraded the stock to "neutral" from "outperform" with a price target of $78 on the view its current levels are overvalued. 

By mid-morning, shares had been slashed 12.4% to $69.80.

TheStreet Ratings team rates BED BATH & BEYOND INC as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate BED BATH & BEYOND INC (BBBY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, notable return on equity and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • BBBY's revenue growth has slightly outpaced the industry average of 8.2%. Since the same quarter one year prior, revenues slightly increased by 8.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 42.52% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, BBBY should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • BED BATH & BEYOND INC has improved earnings per share by 18.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, BED BATH & BEYOND INC increased its bottom line by earning $4.58 versus $4.08 in the prior year. This year, the market expects an improvement in earnings ($5.00 versus $4.58).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Specialty Retail industry and the overall market, BED BATH & BEYOND INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has increased to $223.10 million or 11.68% when compared to the same quarter last year. In addition, BED BATH & BEYOND INC has also modestly surpassed the industry average cash flow growth rate of 4.43%.

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