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

At the end of February, I featured a retail store chain Bed Bath & Beyond Inc. (NASDAQ:BBBY) in my article, stating that it could be a decent stock for long-term investors at $57.70 per share. Last Saturday, Barron’s thought that its share price could fetch around $85 per share on a buyout deal. Since the beginning of this year, Bed Bath & Beyond has advanced by more than 9.2% to more than $61 per share. Here are the five reasons that investors could feel safe investing into Bed Bath & Beyond at its current price:

A consistent growing cash cow

In the past ten years, Bed Bath & Beyond Inc. (NASDAQ:BBBY) has demonstrated a good growth in its revenue, EPS and its cash flow. Its revenue has grown from $3.67 billion in 2002 to $9.5 billion in 2011 while the EPS has risen from $1 to $4.06 during the same period. In addition, investors could consider this retailer chain operator to be a cash cow. While its operating cash flow tripled to $1.25 billion in the past ten years, its free cash flow also increased from $284 million in 2003 to $982 million in 2012. Thus, the revenue, EPS and free cash flow all experienced double digit annualized growth of 13%, 15% and 14.1% in a 10-year period, respectively.

No leverage employed in the operation

What makes me interested in any retailers is its conservative capital structure. With the strong balance sheet, retailers could weather short-term business headwinds without wiping out its equity portion. I feel comfortable with Bed Bath & Beyond Inc. (NASDAQ:BBBY) as it does not employ any debt in its operation. As of November 2012, it had nearly $4 billion in equity, $785 million in cash and short-term investments and no debt. The two biggest items in its liabilities were account payable of $1.1 billion and deferred revenues of $480 million. Moreover, in the past five years, the company has spent nearly $2.75 billion in share buybacks, reducing its share count from around 268 million to 244 million.