Best Buy’s Stock To Likely Trade Higher Post Fiscal Q3 Earnings

Best Buy (NYSE: BBY) is scheduled to report its fiscal third-quarter results on Tuesday, November 24. We expect the consumer electronics retailer to likely beat the revenue and earnings expectations, driven by a major sales boost from the work from home and virtual school trends. Best Buy benefited from people transitioning to working from home earlier during the pandemic with the growth in sales of products such as batteries, PCs, laptops, LCDs, printers, and Refrigerators. Consequently, Best Buy (generating more than 25% of sales online) was also able to drive consumers to purchase electronics online without losing customers to Amazon in FY Q2. We believe that consumers could continue to keep spending big on technology products including new video game consoles, streaming devices, and 5G smartphones going forward. It should be noted that the company is currently in fiscal 2021 (year ending January 2021).

Our forecast indicates that Best Buy’s valuation is $120 a share, which is in-line with the current market price. Look at our interactive dashboard analysis on Best Buy’s Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates Best Buy’s Q3 2021 revenues to be around $11.2 Bil, 2% ahead of the consensus estimate of $11 Bil. In FY Q2, Best Buy’s total revenue grew 4% year-over-year (y-o-y) to $9.9 billion on a 5.8% increase in comparable sales, even with lower advertising spending and a much smaller workforce. Notably, domestic online sales grew by a large 242%, growing to 53% of the domestic sales mix from 16% a year ago. This made Q2 the busiest quarter for online sales in Best Buy’s history by a wide margin. Customers chose to pick up 41% of those online orders in stores or curbside.

2) EPS also likely to be marginally ahead of consensus estimates

Best Buy’s Q3 2021 earnings per share (EPS) are expected to be $1.71 per Trefis analysis, marginally above the consensus estimate of $1.70. While the retailer saw incremental Covid expenses so far this year due to special bonuses to hourly employees, higher wages in fulfillment centers, and an exponential increase in digital sales during the quarter, its stronger revenue growth helped to offset those expenses. In Q2, the retailer’s total operating expenses declined by about $200 million y-o-y, as its stores reopened after functioning as an appointment-only store for the first six weeks of the quarter. This helped Best Buy grow its adjusted operating margin by 190 basis points y-o-y to 5.9%, driving a 58% surge in adjusted earnings per share to $1.71 in Q2.

For the full-year, we expect Best Buy’s adjusted net margin to grow from 3.7% in fiscal 2020 to 4.3% in fiscal 2021. This coupled with a 5% y-o-y growth in Best Buy’s revenues, could lead to a rise of $300 million y-o-y in adjusted net income to $1.9 billion in FY 2021. All this, resulting in a possible adjusted EPS increase from $6.04 in FY 2020 to around $7.24 in FY 2021.

(3) Stock price estimate in-line with the current market price

Going by our Best Buy’s Valuation, with an EPS estimate of around $7.24 and P/E multiple of 16x in fiscal 2021, this translates into a price of $120, which is in-line with the current market price.

We are looking forward to what the company’s management has to say about demand trends heading into the holiday shopping season in its fiscal Q3 report.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year

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