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Bed Bath & Beyond received a lifeline that should help it stave off bankruptcy for at least a while. However, the company has already started to close stores, which should give companies like Target a chance to pick up extra sales, analysts say. “We believe that struggles at BBBY (non-covered) will drive a significant near-term share opportunity at Target similar (if not greater) than the Toys ‘R’ Us/Babies ‘R’ Us share gains of 2018/2019,” Piper Sandler’s Edward Yruma wrote in a Tuesday note. Bed Bath & Beyond on Tuesday announced a public offering for a more than $1 billion equity infusion to help the struggling retailer remain solvent. The cash infusion will be used to help the retailer repay some of its debts. Any remainder will be used to help the company’s turnaround strategy. Regardless, big-box retailer Target will benefit from a pick-up in home furnishings sales , even as Bed Bath & Beyond continues to kick the can down the road, Piper Sandler analysts say. “Irrespective of BBBY’s long-term solvency, we think that TGT can capture significant near- and medium-term home furnishings market share from BBBY,” Yruma wrote. More than 400 store closures are expected from Bed Bath & Beyond, which Piper Sandler expects will bolster nearby Target locations. The firm found that a Target store is within 2.1 miles on average from the announced store closures. Other retailers are also expected to benefit from the close proximity . Not to mention, home goods is already a core category for Target, totaling 18.5% of the retailer’s revenue over the last 12 months, according to the note. “We estimate a 15% capture rate of LTM BBBY sales would drive 100+ bps to comp and $0.40+ in EPS for TGT,” Yruma said. Target has taken advantage of major store closures in the past. Following the liquidation of Toys “R” Us, the general merchandise retailer expanded market share into toys. The analyst expects that Target can do the same with Bed Bath & Beyond as the latter struggles with inventory levels, with “significant” out-of-stocks in kitchen and home good products, according to the firm’s store checks. Yruma does not expect a return to historical operating levels until the back-to-college shopping season later this year. “We believe that TGT will opportunistically lean into the category via its compelling private label in soft home as well as through its strong national brand offering,” Yruma said. The analyst raised his price target on Target to $220, saying that he has higher confidence in the general merchandise retailer’s 2024 estimates. The new price target implies more than 25% upside from Tuesday’s close for Target. Shares dipped more than 1% during Wednesday afternoon. Yruma said Target remains one of his “favorite” ideas. “Recall that Target initially guided 2022 to an ~8% EBIT margin (PSC at 3.4% and 5.5% for 2022 and 2023, respectively). We believe that a medium-term earnings recovery scenario of $12 in EPS (~6% EBIT margin) is reasonable,” Yruma wrote. “TGT trades at a ~5x multiple point discount on a 2023 P/E basis to WMT (see Exhibit 12), which we think could show further compression as TGT’s earnings growth accelerates against easier comparisons,” he added. — CNBC’s Michael Bloom contributed to this story.
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