Ahead of the Bell: Best Buy

Jefferies analyst boosts rating for Best Buy, predicting cost and operations improvements

Associated Press

NEW YORK (AP) -- A Jefferies analyst on Wednesday upgraded Best Buy Co., predicting that the electronics retailer will cut costs and fix its business model.

Daniel Binder raised his rating for the Minneapolis-based company to "Buy" from "Hold" and boosted his price target by $11 to $24. He said that Best Buy's turnaround story is at the point where observers don't have all the information they would like, but it's clear that the company has reached a turning point.

"Ultimately this is a bet that new management will cut costs, bring better processes, discipline and measurement to the business, essentially fix what it has and stabilize the business," Binder wrote in a note to investors.

On Friday, Best Buy reported that U.S. revenue in stores open at least 14 months rose 0.9 percent, the best performance in 11 quarters. The metric is a key measure of a retailer's health, because it excludes revenue from stores that recently opened or closed. Its adjusted earnings and revenue topped Wall Street's expectations.

Best Buy has been working to turn around its results as it faces tough competition from online retailers and discounters. The company has cut jobs, invested in training employees and started matching online prices. And its results show that the changes are beginning to help.

Binder said Wednesday that the company's new management has the expertise needed to turnaround the company, while there are clear opportunities to cut costs and a plan to achieve them. In addition, the company's profits down the road have the potential to beat expectations, while expectations for the first half of this year are very low in light of the company's investment spending plans, he said.

Best Buy shares rose 45 cents, or 2.5 percent, to $18.85 in premarket trading.

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