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Why Best Buy Stock Fell 5.7% Yesterday

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Stock fell on rating downgrade

Best Buy (BBY) stock fell 5.7% on December 17 in reaction to a downgrade by Bank of America Merrill Lynch to “underperform” from “neutral.” Bank of America Merrill Lynch also lowered its price target for Best Buy stock to $50 from $70. The downgrade reflected a likely deceleration in sales for some consumer electronics product categories, like TVs, gaming, and Apple’s (AAPL) iPhones.

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Will Best Buy’s Q4 sales impress?

Best Buy’s third quarter of fiscal 2019 results[1. Q3 of fiscal 2019 ended on November 3], announced on November 20, beat analysts’ expectations. However, some analysts lowered their price targets for the stock following the results, expecting a stronger outlook for the fiscal fourth quarter, which includes the holiday season.

Bank of America Merrill Lynch cautioned investors that Best Buy might lag behind analysts’ same-store sales estimates for the fourth quarter.

Based on the guidance issued in November, Best Buy expects Q4 of fiscal 2019 same-store sales growth in the range of 0.0%–3.0%. For fiscal 2019 as a whole, Best Buy expects same-store sales growth in the 4.0%–5.0% range.

Best Buy has been implementing several measures to improve its top line amid a challenging retail environment, where Amazon (AMZN) and other online retailers continue to attract more consumers by providing a convenient shopping experience and competitive pricing. Best Buy has been focusing on growth categories like smart home. Best Buy is also strengthening its services business through its in-home Advisor program and its Total Tech Support offering.

Currently, analysts expect Best Buy’s Q4 of fiscal 2019[2. Q4 of fiscal 2019 ends on February 2, 2019] overall revenue to fall 4.3% to $14.7 billion, reflecting comparisons with solid numbers in Q4 of fiscal 2018. Analysts expect Best Buy’s fourth-quarter adjusted EPS to rise 6.2% to $2.57.

Best Buy stock was down 23.7% year-to-date as of December 17. Specialty retail peer GameStop (GME) has fallen 29.5% while Aaron’s (AAN) has risen 1.7%. As of December 17, Best Buy stock was rated a “hold” by 17 out of 25 analysts. The stock was rated a “buy” by five analysts and a “sell” by three analysts. As of December 17, Best Buy stock had an average 12-month price target of $72.74, reflecting 39% upside potential.

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