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How Analysts Reacted to Best Buy’s Q1 Results

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Analysts’ reaction

Best Buy (BBY) reported upbeat results for the first quarter of fiscal 2020 (which ended on May 4) on May 23. However, its stock fell 4.8% on May 23 as it kept its fiscal 2020 guidance unchanged and cautioned that a rise in tariffs would likely cause an increase in prices for its US consumers.

On May 24, Citigroup lowered its price target on BBY to $74 from $77, and RBC cuts its price target to $70 from $71. As of May 24, the 12-month price target for Best Buy stock was $77.23, reflecting a potential upside of ~17%. Best Buy stock had risen 24.5% on a YTD (year-to-date) basis as of May 24, outperforming the 12.7% rise in the S&P 500 Index. The stock of peer Gamestop (GME) had fallen 38% YTD, while Aaron’s (AAN) stock had risen 29.5% YTD as of May 24.

Best Buy stock was rated as a “hold” by 17 out of 27 analysts (or 63%) as of May 25. Nine analysts had “buy” ratings on the stock, while one had a “sell” rating.

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What drove its first-quarter earnings growth

Best Buy’s first-quarter EPS grew 24.4% on a year-over-year basis to $1.02 and easily surpassed analysts’ expectation of $0.86. The company’s EPS growth was driven by lower incentive compensation, a reduced effective tax rate, and a lower share count due to share repurchases.

Even after generating strong earnings growth in the first quarter, Best Buy kept its fiscal 2020 guidance unchanged due to the estimated impact of higher US tariffs on Chinese imports.

Best Buy continues to expect its fiscal 2020 EPS to range between $5.45 and $5.65 compared to $5.32 in fiscal 2019. Best Buy plans to make share repurchases in the range of $750 million–$1.0 billion in fiscal 2020.

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