Bed Bath & Beyond Inc. (NASDAQ: BBBY) shares were crushed on Thursday after the company reported its most recent quarterly results. This was an especially bad quarter with the company posting a huge loss on the bottom line. In most cases, this would necessitate analyst downgrades, but one analyst is taking a contrarian view that Bed Bath & Beyond can only go up from here.

Merrill Lynch reiterated a Buy rating for Bed Bath & Beyond but lowered its price objective to $21 from $24, implying upside of over 50% from the current price level.

The brokerage firm noted that while third-quarter results disappointed, this is not a true reflection in the company’s earnings power or the potential for a turnaround. Other positive catalysts include more asset sales, as well as senior executive hires.

Merrill Lynch detailed in its report:

However, we do not believe that the third quarter print or its implications on forward earnings are nearly as bad as they look on the surface given that: 1) 40% of the EPS miss was due to an accounting charge; 2) comps saw a nearly 500 basis points hit due to a calendar shift and; 3) with CEO Tritton only two months on the job and still in assessment mode of the business, we do not believe this is the quarter to judge the true health or potential of Bed Bath & Beyond’s earnings.

In March or April, the company will host an analyst day that Merrill Lynch believes will outline in detail the largest potential earnings drivers, including:

1. A reshaping of BBBY’s sourcing and merchandising capabilities that should lead to much higher margins and a stabilization in sales
2. Significant cost cutting opportunities after years of inefficiencies
3. Upgrades to omni-channel capabilities to make BBBY more competitive with other large box retailers
4. A rationalization of non-core segments
5. A reengagement in share buybacks

The firm still sees the potential other big positive catalysts. Earlier this week, Bed Bath & Beyond announced that it had completed an over $250 million sale-leaseback transaction involving 2.1 million in owned real estate. With 2.4 million square feet of real estate remaining on the books, as well as several non-core operating segments that could be sold, Merrill Lynch sees more opportunity for capital inflow that could be used for capital return. Also, announcements on the hiring of strong new executives to join CEO Tritton’s team are expected sooner rather than later.

Shares of Bed Bath & Beyond were last seen down about 20% at $13.38, in a 52-week range of $7.31 to $19.57. The consensus price target is $14.89.

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