Analysts Can’t Always Be Trusted

Here’s One Way Wall Street Cheats.

Los Angeles based Wedbush Securities got some national press last Friday morning when republished their Jun. 26, 2014, research blurb on Bed, Bath & Beyond (BBBY).  The analyst indicated he was now neutral on BBBY @ $61.11 per share. He cut his target price by $8 per share to $58.

The report was accompanied by a chart dated June 26, 2014 @ 4:00 PM.

What was not said was that BBBY had reported after the close on the previous day. The stock was already trading in the $56 range as the analyst was writing to clients.

Barron’s on-line editor was complicit in publishing the Wedbush piece without fact-checking to see that it could not have been accurate at the time of its release.

How can I be sure that the Wedbush analyst knew about both the Q1 news and BBBY’s share price reaction? He discussed the quarterly report in his research alert (see excerpt below).

Wedbush Research  BBBY Jun. 26, 2014 with author's annotations.JPG

Pretending to have downgraded the stock before its $5 per share drop is not ethical. Counting his firm’s change in rating from a closing price that was no longer available inflates their model portfolio results in a way that customers know does not reflect reality.

Here is what took place in the shares of Bed, Bath & Beyond after the close on Wednesday but prior to Thursday’s opening. Note the impossibility of trading at $61.11 after 4 PM on June 25, 2014.

Exposing Wall Street's Cheats

Past-posting is not a new concept. It was the main theme of The Sting, Hollywood’s Best Picture of 1973.


The Sting with quote


Now let’s look at the quality of advice Wedbush was offering, ignoring the fact that they failed to address events that had already taken place.

The analyst went to a Neutral, supposedly at $61.11 with a price target of $58. Is there anyone reading this that would like to hold a non-dividend paying stock that you believe will be about 5% lower in the foreseeable future? Just asking.

Was that $58 goal price really a good evaluation of where BBBY could be a year? The buzz on the Street was that BBBY had ‘missed’ its quarter. In fact, the 93-cents was right within management’s previous guidance range of $0.92 – $0.96. It exactly matched the year ago fiscal Q1 EPS in a period that spanned a (-2.9%) GDP and the much ballyhooed Polar Vortex.

I found that pretty impressive.

After digesting the ‘disappointing’ numbers here are the latest earnings estimates from up to 28 different analysts as reported on Yahoo Finance.

Click here to finish reading this article.




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