NEW YORK (AP) -- Best Buy's shares climbed to a multiyear high on Thursday after an analyst lifted the consumer electronics retailer's rating and price target due to his increased confidence in its turnaround strategy.
THE SPARK: Brian Nagel of Oppenheimer raised Best Buy Co. Inc. to "Outperform" from "Perform" and boosted his price target on the stock to $50 from $36.
THE BACKGROUND: Best Buy has been shuttering underperforming stores and revamping others to offset tough competition from discounters and online retailers. Under CEO Hubert Joly, the company has instituted a price-matching policy, opened more in-store areas for manufacturers such as Apple and Samsung and invested more to train employees.
Such measures are intended to prevent "showrooming," which is when people go to stores to browse products but then shop online for lower prices. The practice has hurt Best Buy's performance in recent years.
Best Buy has also been working to improve its own website to help give it a competitive edge.
THE ANALYSIS: Nagel said that Best Buy has concentrated more on its cost-control efforts while also improving its competitive position in the consumer electronics retail space. The analyst noted that Best Buy has become more competitive on pricing with online retailer Amazon.com on large-screen TVs, tablets, mobile devices and appliances.
"We believe the Best Buy recovery still has substantial legs," he wrote in a client note.
Nagel said that he expects the chain's domestic sales at stores open at least a year will be up 1 to 3 percent in the year's back half. This would be a marked improvement from the average 2 percent drop the past 10 quarters, he explained.
The analyst said he believes that Best Buy may resume stock buybacks after the holiday season, anticipating it will end the year with an almost $3 billion cash balance and annual free cash flows of more than $1 billion. The retailer also has $4 billion left under an existing repurchase program, he added.
SHARE ACTION: The stock climbed 99 cents, or 2.4 percent, to $42.59 in afternoon trading. It climbed to $42.96 earlier, the highest level since December 2010.
- Consumer Discretionary
- Best Buy