After an 8% decline over the last six months, at the current price of around $75 per share, we believe Best Buy’s stock (NYSE: BBY), an electronics specialty retailer – is fairly priced. BBY stock has declined from $82 to $75 in the last six months, underperforming the broader indices, with the S&P growing about 9% over the same period. Several big factors hurt the consumer electronics retailing niche, including rampant inflation and supply chain disruptions. A tough comparison with the pandemic and stimulus-induced growth over the past two years, as well as inflationary headwinds contributed to the slowdown.
In the recent Q1, the electronics retailer posted $1.15 (down 27% year-over-year) in adjusted EPS, exceeding the $1.10 consensus, and $9.47 billion in revenue (down 11% y-o-y), missing the analyst expectation by $60 million. The retailer saw a 10.1% decline in comparable sales from the prior year. The largest drivers of the comparable sales decline on a weighted basis were computing, appliances, home theater, and mobile phones. Those drivers were partially offset by growth in the gaming and services categories. Best Buy
BBY
was forced to rely more on discounts and other promotions to drive sales, which weighed on its profitability. Its gross margin improved to 22.6%, up 70 basis points, but its operating margin fell to 3.4% from 4.6% in the prior-year quarter.
We forecast Best Buy’s Revenues to be $44.4 billion for the full year 2024 (year ending Jan 2024), down 4% y-o-y. Looking at the bottom line, we now forecast adjusted EPS at $6.08. Given the changes to our revenues and earnings forecast, we have revised our Best Buy’s Valuation to $79 per share, based on $6.08 expected EPS and a 12.9x P/E multiple for fiscal 2024 – almost 5% higher than the current market price.
BBY expects full-year revenue in the range of $43.8 billion to $45.2 billion. Its enterprise comps growth is expected to decline in the range of 3% to 6%. Also, the company forecasts its operating income rate to range between 3.7% to 4.1% for the full year. Additionally, its non-GAAP diluted EPS is expected to come in the range of $5.70 to $6.50 compared to the consensus of $6.20. In the fiscal Q2, BBY expects its comparable sales to decline in the range of 6% to 8% and the non-GAAP operating income rate to be approximately 3% or slightly higher.
It is helpful to see how its peers stack up. Check out how Best Buy’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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