In a report published Monday, Credit Suisse analyst Seth Sigman maintained an Outperform rating and price target of $45 on Best Buy Co Inc (NYSE: BBY). The analyst expects the company to see comps below the Street consensus in 2H, with potential upside to the Q2 results.
While the comp expectations appear to be reflected in the stock, the analyst believes there are positive signs related to demand, which is likely to help the company deliver a better than expected performance in 2H.
“We remain constructive on BBY’s ability to deliver upside over the next year, through market share gains, benefits from rationalizing Canada, store closures in the US, progress on improving product returns/ other operational initiatives, and the potential for greater capital return,” Sigman stated.
According to the Credit Suisse report, “The key to achieving positive total comps is flat or slightly positive comps in the CE category, which would imply an acceleration in the two and three year comp trends.”
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However, this would depend on whether the recent improvement seen in TVs is sustainable. On the other hand, 4k adoption has been in sync with that seen in previous cycles, which the analyst believes is a positive sign. The analyst also believes that there are opportunities for Best Buy in the video games, appliances and computing segments.
The analyst believes that the company needs to make more investments at this stage, which is likely to limit EPS upside in 2015, “but improving comps and gross profit comps are the key measures of progress, including on a two-year basis.”
Date: August 17, 2015