Best Buy (BBY) has announced a serious of strategic adjustments after the consumer electronics retailer failed to impress investors in the last few quarters, and now some analysts say there could be buying opportunity for the stock ahead of a possible rebound.
Of 17 sell-side and independent analysts who have changed or reiterated their price targets, 8 have a positive rating and 9 are neutral. The median price target has stayed flat at $41 from our December prognosis, and the mean has slightly dropped to $40.09 from to $40.91, but is still 21% higher than today’s closing price of $33.13.
Current 12-month price targets of selected sell-side and independent analysts. Click image to enlarge.
Credit Suisse analyst Gary Balter, who rates the company at Outperform with a $42 price target, said the electronics retail chain typically sees one of its best performances in March after slower sales in January and February. “We believe we are near peak investor negativity for this stock, as we show in the full report, which traditionally provides a good buying opportunity. BBY tends to trade with the change in comps growth rate from the prior quarter, so even if comps stay negative, the stock can rise,” said Balter.
Goldman Sachs analyst Matthew Fassler, who has a Neutral rating and trimmed his price target to $38 from $39, said Best Buy announced a series of changes to store opening plans, as well as other minor restructuring moves, that he believes will result in a more streamlined growth strategy and in cost saving.
“The company plans to open 6 to 8 large-format stores in the U.S. and a total of 18 stores in the United Kingdom, Mexico and Canada in fiscal 2012. The International market continues to bring noteworthy prospects for the company along with financial growth for the stakeholders,” said Zacks equity analysts who have a Hold recommendation on the stock.
Best Buy also announced this week it is closing its namesake stores in China and shifting new U.S. store growth to smaller formats instead of its familiar big boxes, said the Wall Street Journal. Best Buy said it would focus on growing in China under another retail format called Five Star that has proven more successful; it disclosed plans to open 40 to 50 additional Five Star stores in 2012.
“As a result of the restructuring moves, Best Buy said it would incur charges of $225 million to $245 million over its next two fiscal years, diluting earnings. But it maintained that the moves would eventually result in an annual pre-tax savings of $60 million to $70 million by 2013, according to the Journal.
Oppenheimer analyst Brian Nagel, who has a $39 price target, was optimistic on Best Buy’s announcement on new strategic moves, and said it could set the stage for further “internal improvement” type announcements from BBY over the next several months.
But other analysts said they are worried about Best Buy’s sales volume as the firm continues to compete with the likes of retail giant Wal-Mart (WMT).
“Typically everyday pricing is a pledge that a retailer will offer the best price it can get from suppliers and still make money on each item. Best Buy may not be able to generate enough consumer interest to make up for lower average selling prices,” said Michael Pachter, a Wedbush Securities analyst, who has a Neutral rating and $37.50 target.
Citigroup analyst Kate McShane, who sets the stock at Hold and decreased her price target on Best Buy to $36 from $37, also remains conservative on the stock. “We are cautious on BBY’s upcoming quarter and some of the commentary surrounding guidance for FY12 based on sluggish growth in TV’s and potential GM% pressure,” she wrote.
Source: Alacra Pulse, Zacks, Street Insider, Bloomberg, Wall Street Journal
