JC Penney’s (JCP) stock has been undergoing something of a renaissance during the past month. Bed Bath & Beyond’s (BBBY) has been standing still. Could the two be related?Bloomberg
Shares of JC Penney have surged 42% higher during the past month of trading, while Bed Bath & Beyond has gained 3.7%. Credit Suisse analysts Gary Balter and Andrew Kinder explain why Bed Bath & Beyond’s future is tied to JC Penney:
From 2007 through 2012, JC Penney, once one of the biggest home retailers, lost over $2.6 billion in home furnishing sales, including an amazing 40% drop in 2012 alone. We believe that one of the top beneficiaries of]JC Penney’s] largesse was Bed Bath and Beyond, which grew its home furnishing sales from 2007 through 2012 by $3.9 billion. We estimate [Bed Bath and Beyond's] share of the segment rose from 5.6% to 9.3% during that period.
The U.S. housing recovery still has legs and should also be sustained by a pickup in household formation as employment figures improve [Bed Bath and Beyond's] efforts to upgrade its website, invest in distribution, and improve service have been paying off with comps relatively solid the last few quarters. With [JC Penney] planning to relaunch its home area and
Internet retailers continuing to grow faster than the industry, the question is whether [Bed Bath and Beyond] will be able to continue to execute with most of the low-hanging fruit now gone. We continue to rate [Bed Bath and Beyond] Neutral.
Shares of JC Penney have ticked up 0.2% to $8.73, while Bed Bath & Beyond is up 0.1% st $68.38.