Best Buy’s Stock Down 12% In A Month, What’s Next?
After a 12% decline over the last month, at the current price of around $93 per share, we believe Best Buy’s stock (NYSE: BBY), an electronics specialty retailer – could see a rebound. BBY stock has declined from $105 to $93 in the last month, underperforming the broader indices, with the S&P growing almost 7% over the same period. Several big factors hurt the consumer electronics retailing niche, including the rise of the omicron variant, inflation sparked by the Russia and Ukraine crisis, supply chain shortages, and prolonged higher input costs – leading to lower operating income in 2021. To add to this, the company continues to aggressively invest in digitalization, putting its operating margin under further pressure in 2023. However, BBY also continues to leverage growing trends in technology and enhance its addressable market with the recent acquisition of Current Health Ltd (a care-at-home technology platform) and its new Best Buy Totaltech membership program. All this eventually providing meaningful sales that could drive higher operating income in the future. Looking ahead, the company’s management paved a clear path toward its 2025 targets, and reassured its investors that the company is on track to make a record year in their fiscal year 2025 (year ending Jan 2025).
BBY recently reported its Q4 report, wherein revenues and earnings were both lower than our estimates. The company reported Q4 revenues of $16.4 billion, down nearly 3% year-over-year (y-o-y). In fact, the company’s comparable sales declined 2.3% in Q4, largely due to more constrained inventory and the temporary reduction in store count. Still, comps were up 10% for the second straight year in the full year fiscal 2022. To add to this, gross profit margin declined by almost a full percentage point in Q4 as the company eased some of its services pricing. Also, selling expenses grew due to advertising and new spending on the digital sales platform, which impacted the profitability. Consequently, the retailer’s Q4 adjusted earnings per share shrank to $2.73 compared to $3.48 a year ago.
We have updated our model following the Q4 release. We forecast Best Buy’s Revenues to be $52.2 billion for the full year 2023 (year ending Jan 2023), up marginally y-o-y. Looking at the bottom line, we now forecast EPS to come in at $10.29. Given the changes to our revenues and earnings forecast, we have revised our Best Buy’s Valuation to $105 per share, based on $10.29 expected EPS and a 10.2x P/E multiple for fiscal 2023 – almost 11% higher than the current market price. That said, the current dip in BBY stock could be used as a buying opportunity for better gains in the long run.
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Best Buy expects Totaltech’s combination of membership revenue and incremental purchases to add approximately $1.5 billion in revenue by fiscal ‘25 compared to fiscal ‘23. The company also expects its online channel mix to grow from the current 34% to approximately 40% in fiscal ‘25. These factors should drive a sustainable top line growth by the end of fiscal 2025.
Here you’ll find our previous coverage of BBY stock where you can track our view over time.
While BBY stock looks poised for more gains in the future, 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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| Returns | Apr 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| BBY Return | 2% | -9% | 117% |
| S&P 500 Return | 0% | -5% | 102% |
| Trefis MS Portfolio Return | 1% | -7% | 266% |
[1] Month-to-date and year-to-date as of 4/6/2022
[2] Cumulative total returns since the end of 2016
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