- Bed Bath & Beyond’s price target was cut to $0 at Wedbush Securities on Tuesday.
- The struggling retailer is rushing to raise funds to avoid bankruptcy but it’s facing a slate of high-execution risks.
- The retailer’s stock sank by nearly 50% during Tuesday’s session.
Shares of Bed Bath & Beyond are on their way to zero, Wedbush Securities said Tuesday.
Wedbush’s 12-month price target on the company was cut to $0 from $1 by analyst Seth Basham, with the rating held at underperform.
“BBBY proposed a series of moves to generate additional liquidity, satisfy its defaulted loans/missed interest payments, and, most importantly, buy it more time,” Basham wrote.
“Unfortunately, we see a low probability that the company will be able to raise equity and view this as a ‘last gasp’ before filing for bankruptcy protection,” he wrote.
Investors drove the stock down by much as 48% to $3.01 on Tuesday after it more than doubled in price. Bed Bath & Beyond’s market capitalization was around $372 million as of Tuesday, far below its peak of $6.4 billion in January 2021.
The retailer said it’s been able to win commitments from investors to raise more than $1 billion in capital in its bid to avoid bankruptcy. Bed Bath & Beyond launched a share sale on Tuesday and hedge fund Hudson Bay Capital Management is the anchor investor, Bloomberg reported, citing unnamed sources with knowledge of the matter.
The company is also drawing $100 million from a credit line to repay outstanding debt.
Bed Bath & Beyond, which missed a bond payment this month, said plans to close an additional 141 stores.
The move along with other cost-cutting could help stem the bleeding, said Basham. But the company’s survival will depend partially on vendors having clarity on liquidity to accept more normal payment terms, he said.
Wedbush estimated that additional capital coming into Bed Bath & Beyond would provide it with “just a few more quarters” to turn around its operations. The retailer is bumping up against a weak macro backdrop and its new management team faces high-execution risk in dealing with inventory, drawing in customers and cost-saving initiatives, the analyst said.
“As such, we see these capital-raising transactions as a ‘last gasp’ to survive before filing for bankruptcy protection where the common equity would likely be worthless,” said Basham.
“In the event the transactions are successful, BBBY common shares could rise as they are trading like options on the company’s survival, but the ultimate value would be undermined by this highly dilutive offering of preferred stock that would have priority over the common shares,” he said.