Bed Bath & Beyond Inc. (BBBY) Could Receive a 40% Buyout Premium: Target Corporation (TGT), Wal-Mart Stores, Inc. (WMT)

Operates like a private company

According to Barron’s, CEO Steve Temares and the two chairmen Eisenberg and Feinstein has run the company as if it were a private company. The company hosted no investor days and had limited disclosures of its financial statements. Even when Barron’s called for comments from the company, it didn’t return the calls. In addition, its retailing strategy is different from other big retailers’. Barron’s thought it provided excellent customer service but it seldom advertised. What surprises me is the fact that the retail often accepted expired discount coupons. Barron’s commented: “The approach works because many customers come for a single item and leave with many, as they walk around the “racetrack” layout of the narrow-aisled stores.”

The most profitable but the cheapest valued retailer

At around $63 per share, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is worth around $13.5 billion on the market, the market is valuing the retailer at only 6.9 times EV/EBITDA. Compared to other big retailers such as Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT), Bed Bath & Beyond is the smallest and the cheapest company among the three. Target Corporation (NYSE:TGT), at $67 per share, has the total market cap of around $43 billion. It is valued around 8.12 times EV/EBITDA on the market. Wal-Mart is the biggest company among the three, with nearly $246 billion market cap. At around $74 per share, Wal-Mart Stores, Inc. (NYSE:WMT) is valued at 8 times EV/EBITDA. Interestingly, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most profitable company, generating 16% operating margin while the operating margins of Wal-Mart Stores, Inc. (NYSE:WMT) and Target were only 6% and 7%, respectively. While Wal-Mart Stores, Inc. (NYSE:WMT) pays a 2.3% dividend yield to its shareholders, the dividend yield of Target Corporation (NYSE:TGT) is 2%. Bed Bath & Beyond Inc. (NASDAQ:BBBY) does not pay any dividends.

My Foolish take

With all those five reasons above, Bed Bath & Beyond Inc. (NASDAQ:BBBY) is still a buy. A buyout valuation of 10 times EV/EBITDA could value Bed Bath & Beyond at around $85-$88 per share, a 43% premium on its current share price.

The article This Retailer Could Receive a 40% Buyout Premium originally appeared on Fool.com and is written by Anh HOANG.

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