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Best Buy's (BBY) Long Term Looks Bright: Should You Hold?

Zacks Equity Research
Updated

Best Buy Co., Inc. BBY delivered positive earnings surprise for the fourteenth straight quarter when it reported first-quarter fiscal 2017 results on May 24. However, the company’s shares have been down 7.3% since the earnings release. So why this disconnection? Let’s find out.

Despite the positive earnings surprise, Best Buy provided a lackluster second-quarter fiscal 2017 guidance. For the fiscal second quarter, management forecasts Enterprise revenues between $8.35 billion and $8.45 billion, which represents a decline of 2.1–0.9%. Comparable sales are expected to remain flat year over year. Management projects earnings in the range of 38–42 cents per share compared with 49 cents in the prior-year quarter. Also, in the fiscal second quarter, the company expects international revenues to decline 5–10%.

Following the disappointing guidance, the Zacks Consensus Estimate for the fiscal second quarter was revised downward. Over the past 30 days, the Zacks Consensus Estimate for fiscal second quarter has plunged 16% to 42 cents.

BEST BUY Price and Consensus

BEST BUY Price and Consensus | BEST BUY Quote

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Nonetheless, the company’s long-term prospects look bright. This is evident from the upward estimate revisions for fiscal 2017 and 2018. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2017 and 2018 has moved up by 4 cents and 7 cents to $2.90 and $3.09, respectively.

The Zacks Rank #3 (Hold) company’s “Renew Blue” program achieved tremendous success in fiscal 2016. Under the second phase of the plan, which commenced in fiscal 2016, the company intends to improve annualized operating income by $400 million over the next three years. The company has already reached the $200 million mark.

Owing to the shift in consumer buying behavior, retailers find the store-in-a-store concept more viable and profitable to reach their target group. We note that the strategy seems compelling to most retailers and is often considered a game changer as it facilitates the display of different brands under one roof and ensures a larger footfall. Best Buy is leaving no stone unturned to attract consumers and attain incremental revenues, as is evident from its strategic action of opening over 1,400 "Samsung Experience Shops" within its stores.

Stocks to Consider

Some better-ranked stocks in the retail space include The Children's Place, Inc. PLCE, Christopher & Banks Corporation CBK and Destination XL Group, Inc. DXLG. All these stocks hold a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CHILDRENS PLACE (PLCE): Free Stock Analysis Report
 
DESTINATION XL (DXLG): Free Stock Analysis Report
 
BEST BUY (BBY): Free Stock Analysis Report
 
CHRISTOPHER&BNK (CBK): Free Stock Analysis Report
 
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Zacks Investment Research