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Best Buy Stock: Analysts See Upside after Q3 Earnings

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Best Buy (BBY) stock has risen 52.5% this year. The consumer electronics retailer has outpaced the S&P 500, which has grown 25.8% year-to-date. Best Buy reported strong third-quarter earnings on November 26, driving a 9.9% rise in its stock price. The fiscal 2020 third quarter ended on November 2. The company also raised its fiscal 2020 earnings guidance. Sentiment on Best Buy stock looks positive ahead of the holiday season.

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The holiday season is vital for retailers, and a key contributor to their fourth-quarter revenue. In the fourth quarter, analysts expect Best Buy’s revenue to rise 1.7% to $15.0 billion, and its adjusted EPS to rise 0.4% to $2.73. Meanwhile, Best Buy expects fourth-quarter revenue of $14.75 billion–$15.15 billion, same-store sales growth of 0.5%–3.0%, and adjusted EPS of $2.65–$2.75.

Analysts raise price target for Best Buy

As follows, analysts raised their price targets after the company’s third-quarter earnings release:

  • Wedbush: $76 from $63.
  • Jefferies: $91 from $80.
  • JPMorgan Chase: $90 from $77.
  • RBC: $86 from $74.
  • Piper Jaffray: $97 from $86.
  • Telsey Advisory Group: $85 from $75.
  • Instinet: $81 from $73.
  • Guggenheim: $90 from $80.
  • UBS: $82 from $69.

As of November 27, analysts’ average price target for Best Buy was $85.51, which implies an upside of about 6%. Of the 29 analysts covering Best Buy, 18 (62%) suggest “hold,” ten suggest “buy,” and one suggests “sell.”

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Key drivers of Best Buy’s earnings

In the third quarter, Best Buy’s revenue grew 1.8% YoY (year-over-year) to $9.76 billion, beating analysts’ forecast of $9.70 billion. Moreover, the company’s adjusted EPS of $1.13 was significantly ahead of Wall Street’s estimate of $1.03. Its adjusted EPS grew 21.5% YoY, thanks to strong sales and margin expansion. A lower share count owing to share repurchases boosted the adjusted EPS by $0.06.

In Best Buy’s domestic segment, revenue grew 2.4% to $8.96 billion. The company’s 2% same-store sales growth and revenue from GreatCall (acquired in October 2018) were its top-line growth drivers. However, store closures pulled down its domestic revenue growth to some extent. Strength in appliances, headphones, tablets, and computing boosted Best Buy’s domestic same-store sales. Whereas it same-store service sales grew 12.9%, its gaming and home theater sales were weak.

Improved functionality, faster delivery, and enhanced merchandise helped drive the company’s domestic online revenue up by 15% to $1.40 billion.

However, in Best Buy’s international segment, revenue fell 4.1% to $800 million, and same-store sales fell 1.9%. Weakness in the company’s Canadian business and currency exchange impacted the company’s international operations.

Initiatives for boosting revenue

Best Buy is taking various initiatives to enhance its holiday sales. Online or digital channels are a key focus for the company and other retailers. Best Buy is offering free next-day delivery on several items in the holiday season, with no membership or minimum purchase requirement. Customers can pick up their order from a store within an hour of making a purchase.

The company is also offering same-day delivery on several products in 42 markets, and providing curbside pickup in a few stores in New York and other select markets. Moreover, Best Buy has launched 175 alternate pickup locations at UPS and CVS stores in New York.

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Best Buy continues to strengthen its relationship with customers through enhanced services. Best Buy has 720 in-home advisors, including 100 it added in the third quarter. In its third-quarter conference call, the company said customers choosing in-home advisors is boosting spending and its gross margin. The company’s Total Tech Support program is also offering customers a range of services. The program’s membership base has surpassed 2 million. Best Buy has also rolled out its lease-to-own purchasing option in 45 states.

Best Buy is certainly performing better than retail peers Macy’s and Kohl’s, which are struggling to grow amid fierce rivalry from Amazon. Unlike Best Buy, Macy’s and Kohl’s announced dismal third-quarter earnings. For more information, read Macy’s Stock Falls after Earnings on Weak Outlook and Kohl’s Tanks on Weak Q3 Results, Cuts Outlook.

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