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Bed Bath & Beyond: Swap The Equity For The Credit (NASDAQ:BBBY)

Bed Bath & Beyond (BBBY) has been, by far, my best call since I began contributing on Seeking Alpha last year. But the extremely favorable risk/reward then appears to be far more balanced at today’s levels. Yes, 2Q earnings were a blowout, but let’s not forget this is still a retail story facing secular challenges on multiple fronts.

With the stock having significantly re-rated, I fear the market might be pricing in too much optimism in the equity. For the stock to work, the company will need to clear some fairly lofty bars, in my view, and I am simply not prepared to underwrite that risk/reward at this juncture. That said, the company’s liquidity position is a strength, and coupled with EBITDA optionality coming out of COVID-19, I see upside in the longer-dated bonds, which currently trade at a discount and yield ~6-7%.

Outstanding 2Q Comps

BBBY’s 2Q may have

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