Bed Bath & Beyond Could See its Sales Pick Up Significantly as Disappointed Customers Return

It's hoped that the lifeline will keep Bed Bath & Beyond from declaring bankruptcy for the foreseeable future. Analysts believe that Target should be able to pick up extra sales since the company has already begun closing stores.

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To help the struggling retailer remain solvent, Bed Bath & Beyond announced on Tuesday an equity offering worth more than $1 billion. This cash injection will be used to pay off some of the retailer's debts. We will use any remaining funds to help with the turnaround strategy for the company.

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Trade Algo analysts say Target will benefit from a pickup in home furnishings sales despite Bed Bath & Beyond's continued decline.

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It is expected that Bed Bath & Beyond will close more than 400 stores, which Piper Sandler believes will bolster local Target stores. Target stores are on average located within 2.1 miles of the announced store closures. As a result of the close proximity, other retailers should benefit as well.

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Additionally, home goods accounted for 18.5% of Target's revenue over the last year, according to the report.

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Target has previously capitalized on major store closures. Toys became a bigger market share after Toys "R" Us was liquidated.

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As Bed Bath & Beyond struggles with inventory levels, Target is expected to be able to do the same with them, as according to the analyst's store checks, there are "significant" out-of-stocks of kitchen and home goods products. This year's back-to-college shopping season will be the first opportunity to return to historical operating levels.

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According to Trade Algo analysts, Target's 2024 estimates have increased to $220, which is a higher price target. According to the new price target, Target's share price will rise more than 25% from Tuesday's close. Wednesday afternoon, shares fell more than 1%. 

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The company initially guided to an EBIT margin in 2022 of approximately 8% (PSCs of 3.4% and 5.5%, respectively) and we consider a medium-term earnings recovery scenario of $12 EPS (a 6% EBIT margin) realistic.

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“On a 2023 P/E basis, TGT is trading at a five-fold discount to WMT (Exhibit 12), which we believe will continue to compress as TGT's earnings grow more quickly,” Trade Algo analysts suggested.