Bringing back memories of the meme stock craze, shares of Bed Bath & Beyond (NASDAQ:BBBY) almost doubled in Monday’s trading. Since then, however, the stock has given back all of its gains, and then some.
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Facing the prospect of bankruptcy, the troubled retailer announced Monday an equity offering via which it hoped to raise around $1 billion. The company anticipates initial gross proceeds of roughly $225 million, with an additional $800 million via the issuance of securities requiring the holders to buy convertible preferred stock “in future installments assuming certain condition are met.” Should the transactions not be concluded, the company said there was a strong likelihood it would file for bankruptcy.
Investors evidently heard the news and turned away in droves. Hardly a surprising turn of events, says Baird analyst Justin Kleber.
“While this type of complex and creative financing is not our area of expertise, one thing is certain: BBBY common stockholders will be significantly diluted by this transaction (potential for 900M shares outstanding vs. 117M at F3Q-end),” the analyst explained. “In short, it appears as if BBBY has created a defacto $1B ATM offering, with the proceeds used to pay down amounts drawn under the company’s ABL and FILO credit facilities.”
At the same time, the company also said it has appointed a new interim CFO, Holly Etlin, a partner at Alix Partners, a firm BBBY uses for consulting services.
Additionally, just a week after the retailer said it is closing 87 locations, BBBY disclosed that an additional 150 Bed Bath stores will be shutdown. The actions will do little to change the narrative, says Kleber. “While closing underperforming locations should translate into improved fundamentals all else equal, the inflection in fundamentals BBBY is forecasting for FY23 looks overly optimistic,” the analyst explained.
All in, Kleber rates BBBY shares an Underperform (i.e. Sell) along with a $1 price target, suggesting the shares have ~61% downside from current levels. (To watch Kleber’s track record, click here)
None of this comes as a huge surprise to us, however. TipRanks’ stock analysis engine has long expected BBBY to “underperform,” based largely on the consensus of seven vetted analyst ratings which, combined, rate the stock a “strong sell.”
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
