uploads///BBY Valuation

Assessing the Impact of BBY’s Earnings Results on Its Valuation

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Aug. 31 2018, Updated 8:01 a.m. ET

Impact of fiscal second-quarter results

Best Buy’s (BBY) 12-month forward PE ratio fell 7.9% to 14.8x on August 28, the day the company announced its results for the fiscal second quarter of 2019. Best Buy’s fiscal second-quarter results exceeded analysts’ expectations, and the company raised its revenue and earnings guidances for fiscal 2019.

However, the company’s lower-than-expected earnings guidance for the fiscal third quarter of 2019 adversely affected its stock price and valuation multiple on August 28.

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Peer comparison

As of August 29, Best Buy was trading at a 12-month forward PE of 14.8x. Specialty retailers GameStop (GME) and Aaron’s (AAN) were trading at forward valuation multiples of 4.7x and 13.4x, respectively, as of August 29.

Analysts now expect Best Buy’s revenue to rise 1.3% to $42.7 billion in fiscal 2019, which ends on February 2, 2019. The company expects its adjusted EPS to rise 15.2% to $5.09 in the year.

Best Buy has been trying to boost its revenue through its Best Buy 2020 Strategy. Under this strategy, the company has been focusing on growth categories such as the smart home category, and it’s also strengthening its services business. On August 15, the company announced its acquisition of GreatCall, a leading connected health services provider for the aging population, for $800 million. The company expects this acquisition to be completed by the end of the fiscal third quarter of 2019.

Best Buy is also trying to reduce costs and improve efficiency to take the pressure off its profitability due to intense competition from online retailers, higher transportations costs, and the rollout of its Total Tech Support service. The service, offered at $199 per year, provides its members with unlimited support from its Geek Squad irrespective of where a product is bought.

Best Buy has been able to survive and grow amid challenging retail conditions in which several other retailers, including H. H. Gregg, have bitten the dust.

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